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Rent and Operating Trends – Week of May 21st 2023

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Rent and Operating Trends – Week of May 21st 2023

Chris Nebenzahl

Chris Nebenzahl

This will be an important week both from a data and commentary perspective as it relates to the Fed’s future decisions on monetary policy. The Personal Consumption Expenditures index, the Fed’s preferred measure of inflation, will be released Friday. Six different Fed Governors or Regional Fed Presidents are also scheduled to give speeches this week. While they will not give any concrete information about their policy decisions, often Fed Presidents and Governors use their speaking opportunities to imply what direction they may be considering for upcoming policy votes. I expect the Fed will leave rates unchanged for the first time since early 2022, however, continued labor market strength and a higher than expected inflation read could cause them to increase rates once again.

Most multifamily operating fundamentals were flat last week at the national level and metrics remain slightly below their 2022 levels. Multifamily performance is still reflecting normal seasonal patterns, however year-end numbers will likely be muted, even compared to pre-pandemic averages. I expect annual rent growth this year to be in the 1-2% range nationwide, with some markets registering negative growth, while a few markets outperform.

Key Takeaways – Data as of 05/21/2023

Traffic and Leases:

  • Traffic increased the fastest in Florida metros last week, as Tampa, Orlando and Miami were all in the top 4 for traffic growth. Not only is traffic increasing, but overall traffic remains well above the national average in the major Florida markets.

  • Western metros including Albuquerque, Riverside, San Francisco, Portland, and Tucson maintain the lowest traffic rates in the nation, with each market averaging below 6.5 tours per property per week. Despite the low traffic, Albuquerque and Tucson have steady conversion ratios above 30%. However, many of the California and Oregon markets are struggling to sign leases. San Francisco apartments are signing just 1.5 new leases per week, and their conversion ratio ranks last in the nation at 23%.

    Occupancy and ATR:

  • Secondary markets continue to slowly rebuild occupancy rates from lows set at the beginning of this year. Minneapolis led all markets with a 20-basis point increase in occupancy last week, followed by Denver, Tucson, and Charleston. Year-over-year occupancy growth remains negative, but the declines are easing in many markets.

  • Miami, Salt Lake City and Phoenix were the weakest performing occupancy markets last week. Phoenix and Salt Lake City continue to struggle with occupancy, as their new supply has had a significant impact on performance. Both markets have occupancy below 94% and their occupancy rates have fallen roughly 2% year-over-year.

    Net Effective Rent:

  • Net effective rent for our same store sample grew 10 basis points last week and is up 40 basis points on a year-over-year basis, nationwide.

  • San Jose rents grew 60 basis points last week and are now the second highest rents in the country, trailing only New York.

  • San Diego, Chicago, and Raleigh also posted strong weeks, with rents rising a half percent in each metro.

  • Austin, a market mired by new supply pressure and relative employment challenges as the tech industry softens, continues to be one of the weakest performing rent markets in the country. NER fell 20 basis points last week. On an annual basis, rents in Austin are down 2.9%, making it the third worst performing market in the nation, behind only Phoenix and Las Vegas.

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