Rent and Operating Trends Week of June 5th

While there is plenty of warranted speculation on the slowing economy and the potential for a recession, the employment market keeps chugging along, continuing its steady recovery with very strong job growth. Roughly 390,000 new jobs were added in May, exceeding economists’ expectations. The April jobs report was also revised to 436,000 new jobs, and the unemployment rate remained at 3.6%. Inflation and supply chain issues continue to plague the economy, but the incredibly tight employment market will likely lead to a soft landing as the economy cools. Companies across industries are still struggling to find employees at a wide variety of talent and pay scales. This will likely indicate a very shallow and short recession, if we even have a recession at all.

Multifamily fundamentals recorded another strong week last week, although traffic fell ever so slightly for the first time in months. As we approach the final few weeks of the prime rental season, I expect leading indicators like traffic and leasing to continue weakening. Overall demand remains high, and new supply, especially in popular sun belt markets, is not keeping pace. The multifamily industry will continue to see solid performance, albeit at decelerating rates.

Key Takeaways – Data as of 6/5/2022:

Traffic and Leases:

• Traffic fell slightly last week, while new leases signed remained flat nationwide. Roughly 3 new leases were signed per property last week.
• Despite the nationwide slowdown, leasing in Houston and San Antonio continues to accelerate as both markets averaged 4 leases signed per property last week. The Texas markets stand out among the fast-growing sunbelt metros.
• Raleigh, Nashville and Atlanta also had strong leasing activity last week, and the southeastern metros averaged between 3.4 and 3.6 new leases signed.

Occupancy and Leased Percentage:

• Coming on the heels of strong traffic and leases signed over the past few months, occupancy and leased percentages increased nationwide last week. The national average occupancy rate is 95.6%, while the national average leased percentage is 96.8%.
• Seattle and San Jose have the strongest weekly increases in occupancy, growing 17 basis points and 16 basis points respectively. San Jose is also one of the strongest markets for year-over-year occupancy growth, as rates have jumped 1.8% from this time last year.
• Despite strong growth during the pandemic, Las Vegas fundamentals have begun to soften. Occupancy has fallen more than 2.3% year-over-year and is now below 95%. Traffic and leases signed are falling, and while NER is still up almost 15% compared to last year, the growth rate has decelerated quickly from its peak last September.

Net Effective Rent:

•  Nationwide NER increased 30 basis points last week as the national average net effective rent closes in on $1,900.
• The strong leasing season will likely lead to a good summer for rent increases; however I expect NER growth to taper throughout the fall and into 2023. This year is shaping up to look like a normal, pre-pandemic year for operating fundamentals across the industry.
• While concessions remain low in most markets, they are starting to appear. On a week-over-week basis, concessions increased in more than half of the top markets nationwide.