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Rent and Operating Trends – Week of October 29th 2023

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Rent and Operating Trends – Week of October 29th 2023

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Chris Nebenzahl

U.S. economic growth is gaining momentum following a very strong initial estimate of Q3 GDP. The broad measure of economic output showed the economy expanding at a 4.9% annual rate, more than double the growth rate from the first half of the year. Despite higher interest rates throughout the quarter, the American consumer continued to spend. Inventory growth also helped push GDP growth higher. The Fed will meet this week, and while GDP and inflation are not directly linked, the rapid growth in economic activity combined with strong consumer activity could encourage the Fed to increase interest rates again.

Oil prices have come down in recent weeks, falling roughly $10 from a recent peak at the end of September. I expect the normalization of oil prices to lead to lower inflation in the coming months. As the U.S. economy continues to stabilize and grow, global risks appear to the be only dark cloud on the horizon at this point. Escalating tensions in the middle east could weigh on the domestic economy, but given the current strength, I do not expect a major economic slowdown.

Apartment fundamentals continued their steady decline last week, with occupancy and rent leading the way. Occupancy fell another 5 basis points and is now firmly below 94% nationwide. Net effective rent fell another 20 basis points last week and nationwide, rents are down $33 from the mid-summer peak. Leading indicators, including traffic and leasing have remained flat.

Key Takeaways – Data as of 10/29/2023

Traffic and Leases:

  • The average property nationwide sees 7.2 tours per week as we wrap up October. Nationwide traffic has leveled off and stayed flat for the past month after declining quickly at the end of the traditional leasing season.
  • Leasing activity has followed a similar trend and has been steady at 2.4 new leases signed per property since the end of September.
  • California markets had the largest traffic increases last week, with Los Angeles and Riverside both adding nearly a third of a tour per property. San Jose also saw an uptick in traffic.
  • Southern California traffic growth is needed as both markets maintain traffic levels below the national average. Los Angeles and Riverside are two of only a few MSAs where traffic is down on an annual basis as well.

Occupancy and ATR:

  • Nationwide occupancy is 93.88% and has fallen 50 basis points over the last two months.
  • The weekly occupancy declines have been significant, especially in sunbelt markets with low existing occupancy. San Antonio occupancy fell 20 basis points last week, followed by Orlando, whose occupancy dropped 15 basis points, and Jacksonville, where occupancy fell 14 basis points. San Antonio and Jacksonville have market occupancy rates below 92.8%. Orlando is not far behind, with a market occupancy rate of 93.5%.
  • While occupancy has been falling as new supply is delivered, ATR has been holding relatively steady. The average property has 15 units available to rent over the next 60 days, a 7% improvement from this time last year.

Net Effective Rent:

  • NER nationwide is down 1.6% year-over-year, after falling 20 basis points last week.
  • Weekly rent declines were spread across the country and across the affordability spectrum as well. New York, the most expensive market in the country, led all markets with rents falling 90 basis points. Jacksonville and Phoenix, two of the lowest cost markets, saw rents decline 70 basis points last week.
  • 11 of the 33 markets tracked by Radix Research have maintained annual rent growth as of the end of October, leaving 22 markets in red figures. Not only are rents falling in most markets, but the declines are far steeper than the modest rent increases in those markets still seeing growth.

Revenue Per Available Unit:

  • Only one market, Tucson, registered RevPAU growth last week. RevPAU increased 50 basis points in the secondary Arizona metro.
  • Nationwide, RevPAU is down 2.3% on an annual basis. While the declines continue to broaden, the fact remains that in mid to late 2021 RevPAU increased by more than 25% on an annual basis. Despite the mounting losses at the end of 2023, our industry remains in a far different place from a few years ago and revenues have been permanently shifted in almost all markets.

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