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Rent and Operating Trends – Week of November 12th 2023

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Rent and Operating Trends – Week of November 12th 2023

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Chris Nebenzahl

The 10-year treasury is down about 35 basis points from its recent high in mid-October as signs of slowing fundamentals in the economy continue to arise. Mortgage rates have also fallen in recent weeks, prompting a slight uptick in demand for mortgages. The recent drop in mortgage rates may bring some renters back into the buyer pool, cutting into multifamily performance, however, I expect this to impact apartment demand only marginally.

U.S. equity markets have performed well in recent weeks, leading some forecasters to call for a year-end rally across the stock market. Major indices have bounced back significantly since recent lows at the end of October. Economists are predicting a strong fourth quarter for consumer spending despite credit card debt reaching a record in recent weeks. Sentiment surveys indicate that the American consumer is pessimistic about the state of the U.S. economy, yet retail sales and consumer spending continue to increase. The U.S. economy is holding strong, but there are some cracks emerging.

Apartment fundamentals are predictably declining as we approach the end of the year. Rent and occupancy fell modestly last week, while traffic and leasing were flat. Revenue per available unit (RevPAU) dipped as the compounding effect of declining rent and occupancy sent RevPAU further into negative territory.

Key Takeaways – Data as of 11/12/2023

Traffic and Leases:

  • Nationwide traffic and leases were both unchanged last week and the national conversion ratio is 32%.
  • San Jose leads the nation in traffic, as properties average 10.5 tours per week. While most of the nation’s traffic has dipped in recent months, San Jose traffic has remained steady. However, the average property is only signing two new leases per week for a conversion ratio of only 19%.
  • Migration strongholds Dallas, Houston, Miami, and Tampa, round out the top 5 markets for traffic, indicating that despite heavy supply, demand remains elevated in these sunbelt cities. These markets average at least 2.5 new leases signed per property per week, with Houston averaging 3 new leases signed per property.

Occupancy and ATR:

  • Occupancy dipped 2 basis points nationwide last week, further indicating that the pace of decline may be slowing. National occupancy is 93.84%.
  • Charleston led the nation in occupancy growth last week, picking up 17 basis points, for a market occupancy rate of 94.11%. Perhaps more importantly, the uptick in occupancy brought the market back to annual growth. Charleston is one of the few markets with year-over-year occupancy growth, an important sign as all markets were negative just a few weeks ago. While most of the southeast is mired in a slog as new supply outweighs apartment demand, Charleston has flown under the radar as one of the best performing markets in the nation. It is the only southeastern market with positive rent growth on an annual basis, ranking third overall as rents have increased 2.7% from last year.

Net Effective Rent:

  • The national net effective rent last week was $1,840, after rents fell another 20 basis points. The annual rent decline nationwide was 1.5%.
  • New York rents jumped, increasing 1.1% last week alone. The move also helped the Big Apple return to positive territory in annual rent growth.
  • Baltimore, Tucson, and Miami continue to perform well, registering weekly rent growth in a time when rents are falling in most markets.
  • After appearing to stabilize in the late summer and early fall, Phoenix rents are declining quickly again. Rents fell 30 basis points last week and are down 4.8% from this time last year.

Revenue Per Available Unit:

  • Despite a minor drop in occupancy, New York led the RevPAU rankings last week on the back of very strong rent growth. Baltimore also posted strong RevPAU growth last week.
  • Tucson maintains the strongest annual RevPAU growth as rents have grown 5% since this time last year.
  • Amid significant new supply, especially when compared to the existing housing inventory, Jacksonville fundamentals have deteriorated quickly. RevPAU is down 8% on a year-over-year basis, making it the second worst performing market in the nation, in front of only Austin.

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