Rent and Operating Trends – Week of November 26th 2023
It was a fairly quiet week in the U.S. economy as the Thanksgiving holiday limited data releases last week. Existing trends continued from the prior week as the 10-year treasury continued to drift lower. The yield on the 10-year is now 4.42%, nearly 60 basis points below its recent peak in mid-October. Oil prices continue to fall, with WTI Crude Oil trading around $75 per barrel, down from $93 in recent months. The slowdown in oil prices will help keep inflation at bay and potentially allow the Fed to end its monetary tightening. GDP will be released this week and November job gains will be reported next week. Key inflation indicators will also be announced prior to the Fed’s next interest rate announcement.
Multifamily fundamentals have not deviated from their slow decline. Leading indicators were mostly flat last week, while lagging indicators continued to fall. The recent speculation that interest rate increases may be finished has spurred some excitement in the transaction market, as buyers and sellers are beginning to come together on deal terms. Transaction activity has not increased meaningfully yet, but the combination of maturing loans, expiring rate caps and stability in the interest rate market will likely bring an uptick in transaction activity.
Key Takeaways – Data as of 11/26/2023
Traffic and Leases:
- Both traffic and leasing remained unchanged last week at the national level. Additional evidence of seasonality is emerging in the traffic and leasing data, as the annual change in both metrics is essentially flat.
- North Carolina markets had a strong week last week, with Raleigh and Charlotte gaining the most traffic. Other struggling markets including Phoenix, Austin and San Antonio also saw modest gains in traffic last week. This is good news as traffic in each market outpaces the national average. New supply will continue to depress these markets, but if traffic remains elevated that is a strong indication that demand will remain once the development cycle eases.
Occupancy and ATR:
- Occupancy fell three basis points nationwide last week.
- Again optimism emerges in the sunbelt as Orlando, Nashville, Charlotte and Atlanta led the nation in weekly occupancy gains. While all these markets maintain occupancy rates and rent growth well below the national average, slight increases, especially this time of year, are a welcome sight. The gains are also meaningful, as San Antonio, Austin and Atlanta have experienced some of the largest occupancy declines over the past year.
- Coastal gateway markets were the weakest performing occupancy markets last week as New York, Boston, Seattle and San Francisco were four of the five worst performing metros.
Net Effective Rent:
- Nationwide, NER fell 17 basis points last week bringing the national average net effective rent to $1,829. Over the past year rents are down 1.5%.
- San Diego, one of the few remaining markets with annual rent growth, saw rents fall 50 basis points last week.
- Austin remains the weakest performing market on an annual basis, as rents are down 7.1% from this time last year.
- Only New York had positive rent growth last week, with rents rising 20 basis points.
Revenue Per Available Unit:
- RevPAU also fell 17 basis points last week, although the annual performance showed a modest reversal to the recent trend. Since last year, RevPAU is down only 2.2% compared to 2.3% in recent weeks.
- As new supply continues to deliver, especially in the sunbelt, occupancy and NER will continue to fall, forcing RevPAU lower. Northern markets may see a slight reprieve, as deliveries slow in the winter months. However, traffic and leasing activity in colder climates also drops with the temperature. I expect current trends to continue for the next few months, as there are no major indications of changes to the supply and demand trajectories.
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