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Rent and Operating Trends – Week of March 12th 2023

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Rent and Operating Trends – Week of March 12th 2023

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Another strong employment report was overshadowed by the collapse of two regional banks last week and over the weekend. Silicon Valley Bank was taken over by federal regulators and Signature Bank was closed by state regulators after concerns over the safety and availability of deposits led to a run on both banks. The Biden Administration, Treasury Department and FDIC have intervened to ensure the stability of the bank’s depositors and allow them to withdraw deposits even above the FDIC insured level. The downfall of these two banks represents the largest shock to the banking system since the Great Financial Crisis, and will have knock on effects throughout the economy. Silicon Valley Bank was instrumental to the tech industry and start up community, providing funding for many emerging companies over the past few decades. Signature bank’s closure will likely have a larger impact on the real estate market, as it served as a major lender for commercial real estate projects. The federal government has proclaimed that they are not bailing out these banks, and instead the backstopping of deposits will come from the FDIC’s Deposit Insurance Fund, made up of bank fees. The American taxpayers will not be supporting the bank’s failures. Instead, the losses will be borne by the shareholders of these institutions. As a result, regional bank share prices across the nation plummeted Monday, as investors sought safety. With interest rates continuing to increase and speculation for another recession rises, fears of additional bank failures are elevated.

As the fallout from the banking collapses continues, other key economic fundamentals will be released this week. February CPI will be announced Tuesday and retail sales will be released Wednesday. Both should serve as good barometers for the strength and health of the American consumer.

While the macro economy continues to flash mixed signals, the multifamily industry is beginning to show signs of growth. All major metrics improved week-over-week last week except for national occupancy. Traffic and leasing are both showing positive signs in the early stages of leasing season, and NER increased nationwide last week as well. We continue to anticipate a normal seasonal year in multifamily, and the next four months will be crucial for the overall year’s performance.

Key Takeaways – Data as of 03/12/2023

 Traffic and Leases:

  • Traffic and leases both increased last week at the national level.
  • Only 4 of the top markets tracked by Radix saw traffic fall last week, and all four markets were clustered in the Southwest and West Coast. Las Vegas had the worst weekly traffic performance, followed by San Jose, Phoenix and Los Angeles.
  • Despite the slowdown in Los Angeles and San Jose, Riverside and San Francisco saw traffic improve drastically week over week. While these trends may seem to counteract one another, with Southern California apartment hunters looking in the more suburban Riverside MSA, and Northern California prospects returning to the urban core, the similar trend in both regions is toward more affordable rentals. At the MSA level, Riverside is more affordable than Los Angeles, and even though San Francisco has long been the most expensive MSA in the country, San Jose and Silicon Valley have surpassed the San Francisco MSA in NER over the past two years.

Occupancy and ATR:

  • Occupancy nationwide fell 1 basis point last week, as it remains stable around 94.3%.
  • Older markets in the Midwest and mid-Atlantic led weekly occupancy growth, with Minneapolis taking the top spot. Historically one of the highest markets for occupancy, Minneapolis has seen MSA occupancy fall to just above 93%. Last week, occupancy in the Twin Cities increased 17 basis points.

Net Effective Rent:

  • NER increased 10 basis points last week nationwide, as rents begin to increase once again.
  • Despite the drop in traffic, San Jose led all MSAs with 40 basis points of NER growth. The Silicon Valley MSA is the second most costly market for rent in the nation behind New York.
  • The Gateway markets experienced strong rent growth last week, with all 6 metros posting rent week-over-week.  

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