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Rent and Operating Trends – Week of March 26th 2023

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Rent and Operating Trends – Week of March 26th 2023

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Thus far, the U.S. economy is handling the recent banking crisis and last week’s interest rate hike well. Capital markets have remained stable and appear to be reacting positively to the Fed’s position on the economy. During his press conference following the last FOMC meeting Fed Chair Jerome Powell intimated that the monetary tightening cycle will likely end soon, and market prognosticators now predict one more 25 basis point increase in May before an extended period of flat interest rates. Powell insisted that the bank failures at Silicon Valley Bank and Signature Bank were isolated events and that the financial system remains on solid footing. He also mentioned that he is aware of the concentration of commercial real estate loans in regional banks but does not see comparisons to the issues that led to SVB’s failure. While monetary tightening will likely end in the coming weeks, I do not expect interest rates to decline in the near future. With inflation working its way back to the 2-3% range and employment remaining strong, Powell voiced his support for keeping interest rates flat for the remainder of the year once they stop raising rates.

Multifamily leading indicators continue to improve nationwide as both traffic and leasing ticked upward last week. Both metrics have shown steady growth early in 2023 and are just barely negative on a year-over-year basis. Occupancy and ATR were mostly unchanged, while NER improved modestly. As employment remains strong and inflation recedes, demand for apartments will continue to return to normalcy. The spring rental season is underway, and data is starting to support a strong trend for owners and property managers.

Key Takeaways – Data as of 03/26/2023

Traffic and Leases:

  • Traffic growth accelerated rapidly in sunbelt markets last week, led by San Antonio. Average traffic jumped by nearly a full tour per property in the central Texas market as demand remains elevated in the Lone Star state. Austin, Houston and Dallas also ranked in the top 10 for weekly traffic gains last week.
  • Leasing activity also posted a strong week as only 3 markets tracked by Radix Research registered declining new leases.
  • Chicago once again led the nation in new lease growth, and now ranks second in overall new leases signed per week. The average property is signing an average of 3.4 new leases per property per week.

Occupancy and ATR:

  • Occupancy nationwide was unchanged last week, holding firm at 94.29%.
  • At the metro level, occupancy was mixed, with Miami occupancy rising 10 basis points last week alone. Denver, Baltimore, and Phoenix also performed well as their occupancies rebound.
  • All markets tracked by Radix Research have seen occupancy drop on a year-over-year basis, however Gateway markets and older markets in the northeast and Midwest have outperformed compared to their sunbelt peers. Chicago, San Jose, Baltimore, New York and San Francisco have the smallest drops in occupancy nationwide. In fact, only one sunbelt market, San Antonio, cracks the top 10 for best occupancy performance on a year-over-year basis. The outperformance of larger northern cities is likely due to the relative lack of new supply in these markets. Most new supply is concentrated across the sunbelt.

Net Effective Rent:

  • Same-store net effective rent increased 10 basis points nationwide last week and 2.2% on an annual basis.
  • Tampa led all markets with 50 basis points of rent growth last week alone, followed by Boston and Chicago.
  • Year-over-year, Charleston leads all markets with nearly 8.5% net effective rent growth.

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