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Rent and Operating Trends Week of November 13th

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Rent and Operating Trends Week of November 13th

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The US midterm elections will result in a split congress with Democrats maintaining control of the Senate while Republicans will likely win a narrow majority in the House. As a result, I do not expect any sweeping legislation in the next two years, but as President Biden has intimated, there will hopefully be some bipartisan resolution and progress in policy making. Democratic control of the Senate chamber will allow executive appointees to be approved and open cabinet positions to be filled, but the gridlock will lead to very modest legislative action.

From an economic perspective, the results of the election do not change my expectations for the trajectory of growth. I continue to anticipate modest contraction in the coming months. Equity markets rallied last week on the heels of the October CPI reading which, showed inflation is starting to come down. Stocks had their best day since 2020 on Thursday. With inflation moderating, market experts now anticipate the Fed to slow their interest rate increases to 50 basis points at the December meeting. However, the Fed is far from the end of their monetary tightening and we should prepare for additional increases in interest rates until inflation has returned to roughly 2%.

Multifamily operating fundamentals continue to weaken as we approach the final month of 2022. Rent and occupancy, which have been falling steadily, continue to drop, and traffic, which appeared to have flattened, fell again last week. As we have seen for most of the year, the weekly and monthly declines are modest, and long term multifamily remains a favorable asset class, but the current slowdown has certainly taken the luster off the sector from the past few years.

Key Takeaways – Data as of 11/13/2022

Traffic and Leases:

  • After a number of weeks of stable traffic at the national level, the leading indicator once again fell last week. While the decline was modest, it continues the downward trend in traffic. On a year-over-year basis however traffic remains positive, providing support for continued demand for multifamily.
  • New leases signed remained unchanged last week.
  • Dallas led the nation in traffic with 9.9 tours per property last week. For the first time in a few years, none of the top 30 markets averaged more than 10 tours per property. 

Occupancy and Leased:

  • Nationwide occupancy fell 5 basis points last week, and the national occupancy rate is 94.63%.
  • Tampa and Orlando occupancy both increased 4 basis points last week and were 2 of only 4 markets with increasing occupancy. The gains may be a result of growth following Hurricane Ian, but most indications have shown that the multifamily market was not severely impacted by the storm.
 

Net Effective Rent:

  • NER across the country fell 20 basis points, and the national average net effective rent is $1,874.
  • Rents fell the fastest in Salt Lake City, as the Utah capital saw rents decline a full percent last week alone. NER in 7 of the top 30 markets fell by at least 50 basis points.
  • Concessions increased 10.3% nationwide last week and have now increased more than 40% in the past month. As multifamily fundamentals soften especially traffic, leasing and occupancy, concessions are likely to continue to increase.

 

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