Rent and Operating Trends – Week of May 28th 2023
The Personal Consumption Expenditures Index (PCE) increased unexpectedly last month, which has given economists doubt that the Fed is finished with their current monetary tightening campaign. James Bullard, President of the St. Louis Fed, mentioned last week that he sees the need for two additional interest rate hikes to slow down inflation. On the other hand, Neel Kashkari, President of the Minneapolis Fed indicated that the FOMC should pause its rate hikes in June but cautions that a pause may not mean a complete end to the current tightening cycle. There are still three weeks until the Fed’s next meeting, and the economic climate may shift, however, there is growing belief that interest rates could still go higher. I was firmly in the camp that rates would remain unchanged for the rest of this year, but in the wake of the last PCE report, I believe there will be at least one more rate hike at some point in 2023.
First quarter Gross Domestic Product (GDP) was revised upward last week to 1.3% from 1.1%, a modest, but meaningful adjustment. The U.S. economy is still chugging along despite the rapid increase in interest rates and the above trend inflation numbers. Employment remains the backbone of our economy, and May’s job numbers will be released this Friday.
As we near the end of the first half of 2023, operating fundamentals appear range bound with limited movement week to week. Nationwide occupancy has hardly changed all year, while some secondary markets have seen meaningful growth in occupancy. Traffic and Leasing have remained stable in recent months, with properties averaging just under 9 tours per week and 3 new leases signed per week. Rent growth remains modestly positive as NER in our same store sample rose 10 basis points last week and is up 30 basis points year-over-year.
Key Takeaways – Data as of 05/28/2023
Traffic and Leases:
Traffic growth was led by Baltimore last week, as the mid-Atlantic market topped our growth rankings for the first time in years. While demand has been soft in Baltimore, with the market averaging only 7 tours per property per week, their conversion ratio of 42% is among the best in the nation. Baltimore also led our rankings in new lease growth.
As demographic patterns have shown, the southeast and southwest are attracting the most demand, however, Northeast, Midwest and mid-Atlantic markets maintain steady apartment fundamentals driven by the existing population.
Occupancy and ATR:
Occupancy in Charleston increased 25 basis points last week, leading all markets in weekly growth. Chicago, Riverside and Minneapolis also recorded strong growth in occupancy on a week-over-week basis.
Chicago’s apartment market continues to rank among the best in the nation, and it is the only market tracked by Radix Research with annual occupancy growth. The occupancy rate in Chicago is up 35-basis points year-over-year, while the next closest market is San Francisco, with a 52-basis point decline in occupancy.
Net Effective Rent:
NER growth accelerated in New York by 70 basis points last week, making it the fastest growing rent market in the nation. Average rent in the Big Apple is once again above $4,000 per month, making it the most expensive market in the country by a significant margin.
Tucson also posted strong growth last week, as rents rose 50 basis points. Other top performers include Chicago, up 40 basis points, Boston, and Albuquerque, both up 30 basis points.
All five of the top performing markets last week are within the top 10 for annual rent performance as well.