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Rent and Operating Trends Week of October 16th

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Rent and Operating Trends Week of October 16th

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The persistent inflation that has made headlines throughout 2022 refuses to subside, as the recent September price increases showed more generational growth. This time it was core CPI, a measure that removes food and energy prices, which tend to be more volatile. Core CPI increased by 6.6%, its largest annual growth in more than 40 years. While gas and energy prices have been coming down from summer highs, other goods continue to see steady and significant price increases. Overall CPI increased 8.2% annually and was in line with August price growth. As we enter the colder months in Europe and North America, the war in Ukraine will lead to significantly higher prices for natural gas and oil. According to a Wall Street Journal report on Monday, parts of New England may need to prepare for rolling blackouts during the winter as limited natural gas supplies may be diverted from electricity generation to heat generation. It is almost certain that energy prices will rise once again, contributing to even higher inflation. At this point, I expect additional 75-basis point increases to the Fed Funds rate when the policy setting committee meets again in November and December.

Rent and operating fundamentals continue to soften modestly, however investment fundamentals are taking significant hits because of inflation and rising interest rates. Many deals financed through floating rate loans are seeing cash flow drop quickly as interest expenses rise. As a result, many owners are choosing to limit or withhold investment distributions on existing assets. New deals are also falling through and fewer transactions are making it to the closing table. I expect 2022, especially the second half of 2022, to have some of the weakest transaction volume in the past 10 years.

Key Takeaways – Data as of 10/16/2022

Traffic and Leases:

  • Traffic and leasing activity were both flat last week compared to the prior week, as the leading indicators continue to show signs of flattening out. On an annual basis traffic and leases signed are both increasing. 
  • West Coast markets including Riverside, Portland, and San Francisco registered the largest weekly growth in traffic last week.
  • Tampa, Orlando, and Jacksonville saw little change in traffic and leasing last week, and thus far it does not appear that Hurricane Ian had a major impact on the apartment market.

Occupancy and Leased:

  • Nationwide occupancy fell another 7 basis points last week, and now sits roughly 130 basis points below its average from this time last year. The national average leased percentage also fell last week. 
  • Chicago, Dallas and Raleigh saw the largest occupancy drops last week, with each market declining by more than 10 basis points. All three have market-wide occupancy below 95% after having occupancy at or above 96% at this time last year.

Net Effective Rent:

  • NER dropped 30 basis points last week nationwide, as the softening trend continues.
  • Rent’s dropped in almost all markets last week, but more striking is the number of markets now registering year-over-year rent declines. Las Vegas, Phoenix, Jacksonville, and Atlanta, some of the best performing markets of the past few years, have seen rents drop from this time last year. 
  • Major and secondary tech hubs including San Jose, Seattle, Austin and Portland were some of the worst performing markets last week, as rents fell in each metro by 40 basis points or more. While tech will continue to drive our economy in future cycles, the ability for knowledge workers to collaborate remotely will likely keep a damper on the upside potential of rents in big tech hubs.


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