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Rent and Operating Trends Week of June 12th

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Rent and Operating Trends Week of June 12th



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After a brief pause in April, which led to some economists predicting a further slowdown in future prices, inflation once again reared its ugly head in May, as prices increased 8.6% annually. This marks the highest inflation rate since 1981. As a result, treasury rates have spiked once again with the ten-year treasury now yielding 3.35%. Equities have sold off across the board, and speculation is emerging that the Fed will increase interest rates 75 basis points at its June meeting. Borrowing costs for real estate investors are rising, especially on floating rate loans. Rates on bridge and construction loans tied to SOFR will likely increase for the remainder of the year. This may make deals harder to pencil for some investors, especially newly formed investment groups or syndicators who have only raised money during the recent low interest rate environment.


While the cost of ownership and investment may be increasing, property fundamentals remain strong and will likely end the year at or above long-term averages. Net effective rents increased another 30 basis points nationwide last week, while leading indicators like traffic and leases were mostly flat. These indicators seem to have plateaued in recent weeks and will likely remain at their current levels before declining modestly in the fall. Occupancy and leased rates were also mostly flat as we approach the midway point in the year.


Key Takeaways – Data as of 6/12/2022:


Traffic and Leases:


  • Traffic and leases were mostly unchanged last week, and as we approach the end of the prime rental season, these metrics appear to be stabilizing. I expect these metrics to be flat for another month or two before declining overall. Certain strong markets in the sunbelt will maintain elevated traffic and leasing figures.
  • While many of the strongest markets for traffic and leasing continue to be concentrated in the Sunbelt, Chicago stands out with strong data for both leading indicators. The Windy City is averaging more than 12 tours per property per week and nearly 4 new leases signed per property. Apartment interest is strong in many of the urban Chicago submarkets, with leasing activity led by River North and The Loop with 5.1 and 4.5 new leases signed per property last week.


Occupancy and Leased Percentage:


  • Occupancy rates dipped 2 basis points while leased percentage increased 3 basis points last week.
  • San Jose continues to make significant occupancy gains both week-over-week and year-over-year. Its overall occupancy rate of 96.7% ranks fourth among top markets and has increased 1.8% from this time last year. While there has been significant out-migration from California, housing demand remains high as barriers to entry make adding new supply difficult. 3 of the top 4 markets in overall occupancy are in California as well as 4 of the top 10. Steady demand and limited supply will likely lead to further affordability concerns and continued outmigration in the Golden State.


Net Effective Rent:


  • While this may sound like a broken record for regular readers of our Rent and Operating Trends report, NER increased 30 basis points nationwide last week.
  • For the first time in months, NER in all Radix markets either increased or was flat week-over-week. The demand for rental housing is geographically diverse and resilient as rent growth continues at historically strong levels.
  • The expected deceleration in NER continues, however 8 of the top markets maintain year-over-year rent growth of 20% or higher and all but a handful of markets have annual rent growth in double digits.
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