Rent and Operating Trends Week of May 8th
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After a highly volatile April, the economy remained turbulent at the beginning of May. High inflation led the Fed to increase interest rates by 50 basis points, which resulted in major sell offs across the equity market. The Fed will likely continue tightening monetary policy despite the declining financial markets until inflation is brought back into a more normal range. While the stock market is making headlines, the employment market continues its strong growth, as roughly 428,000 new jobs were gained in April. Jobs were added across every major sector last month, and the unemployment rate of 3.6% indicates that the job market has returned to pre-COVID levels. If the employment market remains strong and inflation runs hot, the Fed will continue raising interest rates, which will likely lead to continued volatility in the stock market. Large funds may begin re-evaluating their allocations to different investment sectors, and given the recent strength and stability of multifamily, it would not surprise me to see additional inflows of institutional capital into our sector.
To that point, the multifamily sector continues its steady growth. Traffic and leasing were mostly flat last week, but occupancies and leased percentages increased modestly. NER continues to increase as the average NER for the top 25 metros approaches $2,000 per month. Rent growth will likely continue to decelerate but will not fall off completely as rising interest rates have made home buying difficult. Many would-be buyers are likely to remain renters in the short term.
Key Takeaways – Data as of 5/8/2022:
Traffic and Leases:
- Traffic and leasing were mostly flat last week, with the national conversion rate sitting at just above 30%.
- The strongest leasing activity remains in the southeast, with markets including Jacksonville, Charleston, San Antonio and Charlotte averaging more than three and a half leases per property per week.
- Charleston owns the highest conversion ratio with nearly 40% of prospective renters signing leases.
Occupancy and Leased Percentage:
- Occupancy and leased percentages ticked up modestly last week and the nationwide leased percentage is once again approaching 97%.
- Some migration hotspots including Las Vegas, Jacksonville, Phoenix and Riverside have seen their occupancies drop by one percent or more on an annual basis. However, these markets own some of the strongest migration and rent growth in the nation, so the slight drop in occupancy does not appear to be hurting fundamentals.
Net Effective Rent:
- Net effective rents increased 30 basis points last week as strong demand continues throughout the 2022 rental season.
- In 2020 and 2021, demand was strongest for the largest units as renters sought more space to live and work during the pandemic. The trend has reversed this year, as studios are now seeing the fastest growth on an annual basis. NER for studios is up 19.4% compared to last year, while 1 bedroom growth was 14.5%, 2 bedroom growth 12.4% and 3 bedroom growth trailing at 10.8%.
- Miami and Tampa, the two fastest growing rent markets overall, also led in studio rent growth, with annual increases for studio apartments nearing 40% in the Florida metros.
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