Rent and Operating Trends – Week of January 22nd 2023
The employment market has been garnering significant attention recently, both for positive and negative reasons. Headlines continue to focus on big tech layoffs as Microsoft and Spotify joined Google, Amazon, Meta and Twitter in announcing major staff reductions in the past few days. Many economists view the tech layoffs as a reaction to over hiring in 2020 and 2021, however, and the overall strength of the employment market remains the lone beacon of light in the macro economy. Last week initial jobless claims fell to a 4-month low. More than 200,000 new jobs have been added per month going back to the beginning of last year, and the gains have been well diversified across sectors. Because the employment sector is so strong and the financial system is not wildly overleveraged, the upcoming economic slowdown will likely be light and short.
Regular readers of our RAOT report will know that we mainly focus on traffic, leases, occupancy, and net effective rent. We have recently expanded our research data to include new metrics such as Available to Rent (ATR) and Revenue per Available Unit (RevPAU). Our coverage has also expanded to include new MSAs such as Minneapolis and we will be continuing to expand in the coming months.
Apartment fundamentals had a good week last week, with a number of key metrics turning positive, while others appear to be flattening as we approach the end of January. Net effective rents nationwide picked up for the first time in a number weeks, and traffic, leases and ATR all improved last week as well. Occupancy fell slightly but the pace of decline continues to decelerate, and we could be approaching a bottom in the coming weeks.
Key Takeaways – Data as of 01/22/2023
Traffic and Leases:
- Traffic picked up in all but two of the top 30 MSAs last week, an early positive indication for a strong rental season.
- Nashville, Dallas, Houston and Denver led the nation in week-over-week traffic increases. While the Texas markets had elevated traffic for most of 2022, Denver and Nashville fell back to the middle of the rankings for most key operating metrics. These were two of the best performing markets prior to COVID-19 and have dealt with cost of living and new supply challenges. However the lifestyle amenities and business friendly climate remain in both markets, which could lead to a resurgence of growth in the coming year.
- New leases signed reflected a similar pattern, with only one MSA, Baltimore, signing fewer leases on average last week than the prior week. Nashville and Denver were also in the top 3 MSAs for new leases, followed by Jacksonville and Phoenix. A pickup in leasing activity would be a welcome sight in Phoenix as it struggled last year, but the MSA remains attractive overall as in-migration continues.
- Nationwide occupancy fell one basis point and the pace of declines has been slowing in recent weeks.
- Occupancy dropped in roughly half of the top 30 MSAs, led by Salt Lake City and Charleston, where occupancy fell 19 basis points and 15 basis points respectively.
- ATR also improved in about half of the top MSAs as unit availability is starting to drop. This will likely lead to higher occupancy in the coming weeks and months.
Net Effective Rent:
- NER grew 10 basis points nationwide last week, marking one of the first national increases since last summer.
- The biggest gains were seen in Baltimore and San Antonio, where rents popped 60 basis points.
- I expect rent growth to be mixed for the next few weeks before beginning a steady upward climb through late Q1 and through Q2.
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