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Rent and Operating Trends – Week of November 6th 2023

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Rent and Operating Trends – Week of November 6th 2023

Picture of Chris Nebenzahl

Chris Nebenzahl

October employment growth was weaker than it had been in previous months with new job gains totaling 150,000. August and September gains were revised down, painting a slightly more bleak picture of the employment market than we have seen in recent months. As a result, the 10-year treasury retreated quickly, although it remains high at 4.6%. The October jobs report is not a red flag for the economy in my opinion, as volatility in the jobs numbers has been common since the recovery from COVID-19 began. Unemployment is still historically low at 3.9% and job openings far outpace the number of people looking for jobs. In fact, the rising unemployment figures may indicate a positive trend as more people re-enter the labor force. Job growth is slowing overall, but we continue to add new jobs in the 150,000-200,000 range. Given how tight the labor market is, I view the employment market as a continued point of strength for the macro-economy.

Apartment performance metrics were mostly flat last week, softening in some areas including net effective rent and occupancy. The tenor of many conversations at NMHC’s Optech conference last week was muted, as many apartment owners and operators brace for weakness through the next six months. Our data is indicating a similar trend and given the vast number of new units coming online in the next two years, apartment performance will likely suffer as demand fails to keep up with supply at the national level. There are currently 881,000 units under construction nationwide.

Key Takeaways – Data as of 11/06/2023

Traffic and Leases:

  • Traffic dipped slightly last week nationwide, and the average property now sees 7.1 tours per week. Leasing remained unchanged at 2.3 new leases signed.
  • Baltimore and Denver, two of the best performing markets from a rent growth standpoint, led the weekly growth rankings for traffic. Both picked up a third of a tour per property last week.
  • Another outperforming market, Tucson, led the nation for leasing growth.
  • San Francisco and San Jose also saw modest growth in leasing activity, yet both Bay Area markets still trail the national average for leasing. San Francisco averages 1.2 new leases signed per property per week, while San Jose is averaging 1.8 new leases signed.

Occupancy and ATR:

  • Occupancy fell another two basis points last week, a smaller decline than we’ve seen in recent weeks. I do not think we’ve reached the bottom for occupancy, but a slowdown in the pace of declines would be a good thing for the multifamily industry. Nationwide, occupancy sits at 93.85%.
  • There were a number of markets who recorded occupancy increases last week, led by Salt Lake City, whose market occupancy increased 16 basis points. The growth pushed Salt Lake back above the national average for the first time in months. Utah’s Capital has been struggling from a rent and occupancy perspective as new supply hits the market and in-migration slowed from COVID peaks.
  • The number of units available to rent held firm at 15 nationwide. San Jose, Austin and Chicago lead the nation with the most units available to rent in the next 60 days. Each market averages at least 20 units available per property.

Net Effective Rent:

  • Net effective rents fell 20 basis points last week and the national average NER is $1,843.
  • On an annual basis, rent growth trends have remained intact for the past few months. The hardest hit markets, Austin, Jacksonville, and Salt Lake City, continue to fall as rent declines exceed 6%. The best performing markets, tertiary markets in the southwest and northern Gateway markets continue to improve. Tucson and Albuquerque maintain rent growth above 3%, while Chicago, Boston and Washington D.C. have seen rents rise 2.4% or more in the past 12 months.
  • Despite the long term struggles, Salt Lake City may be showing signs of recovery. Rents were up 40 basis points last week, and given the strong occupancy performance, this could be the beginning of a growth cycle.

Revenue Per Available Unit:

  • While net effective rents are down 1.6% from last year, revenue per available unit has fallen 2.4%, as occupancies have fallen as well.
  • Austin trails all markets with RevPAU declining 8.2% in the past twelve months.
  • With rent and occupancy rising it is no surprise Salt Lake City topped our weekly RevPAU rankings. Miami also posted strong RevPAU performance last week, with revenue per available unit growing 20 basis points.

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