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Rent and Operating Trends – Week of October 8th 2023

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Rent and Operating Trends – Week of October 8th 2023

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Chris Nebenzahl

The economy and interest rate market are working in opposite directions at this point in the cycle. 336,000 new jobs were added in September, nearly doubling analyst expectations. While this is good news for the overall economy, it raises additional questions about the Fed’s course of action with monetary policy going forward. Continued strength across the labor market and macro economy will give the Fed room and reason to increase rates again at its upcoming meetings. Many suspect the Fed will raise rates at one of the remaining meetings this year, but if the economy continues to grow quickly, additional rate hikes may be in the cards. The 10-year treasury continues to push new heights based on the strength of the economy, the likelihood that short term rates will be higher for longer, and new geopolitical concerns brewing. War in the Middle East as well as increasing concern about an upcoming summit between the U.S. and China has pushed oil prices higher in recent days. If oil remains elevated rather than experiencing its typical Q4 slowdown, then inflation numbers are likely to stay elevated as well. The U.S. economy is in good shape, but with every subsequent positive report, the likelihood of higher interest rates for a longer period increases.

Leading multifamily indicators like traffic and leasing were flat last week, while lagging indicators including occupancy and net effective rent fell meaningfully. The occupancy slowdown has intensified and is quickly testing the 94% level nationwide. Many markets, especially in the southeast and southwest already have occupancy levels in the 92-93% range. With both occupancy and NER falling quickly, RevPAU is declining as well.

Key Takeaways – Data as of 10/08/2023

Traffic and Leases:

  • Nationwide, traffic and leases were both unchanged from the prior week. If there is a glimmer of hope to be seen in the multifamily data, it’s that these leading indicators are not dropping rapidly, and in fact about half of all markets tracked by Radix Research have seen a modest increase in traffic and leasing activity from this time last year.
  • The Florida markets including Orlando and Tampa have had the largest increases in traffic on an annual basis.
  • Orlando is also leading the nation in leasing growth on a year-over-year basis, picking up nearly three quarters of a lease per property per week. San Antonio, Riverside, and Portland, three markets that have struggled mightily with rent declines, are just behind Orlando in terms of leasing growth. The growth in leading indicators should eventually lead to rent stability if not growth.

Occupancy and ATR:

  • Occupancy fell another 6 basis points last week, its largest weekly decline this year. The national occupancy rate is now 94.05% and will likely fall into the 93% range in the coming weeks. With the slow season for our industry approaching, occupancy in many markets will struggle.
  • A few small southwestern markets stood out last week, as Colorado Springs and Tucson gained 10 basis points and 8 basis points of occupancy respectively. These tertiary markets are also among the best performing occupancy markets on an annual basis having both only lost about 35 basis points of occupancy since last October.
  • Phoenix also showed some strength, adding 3 basis points of occupancy last week. While the Phoenix market continues to struggle amid high supply pressure, the modest occupancy growth may be a sign that Phoenix is nearing a bottom.
  • Nationwide ATR has stayed mostly flat in recent weeks, with the average property maintaining 15 units available to rent over the next 60 days.

Net Effective Rent:

  • Net effective rent fell 20 basis points last week and the national average net effective rent is $1,861. The annual decline accelerated to 1.7%.
  • Tucson, which has seen strength across many multifamily metrics, leads the nation in year-over-year rent growth at 4.2%. Charleston and Chicago continue to perform well, with annual NER increasing 3% or more.
  • On the other hand, rents fell the fastest last week in Jacksonville and Tampa. Both Florida markets saw NER drop by at least 70 basis points.
  • Only 5 markets saw modest rent increases last week, compared to 26 markets in which net effective rent growth was negative.

Revenue Per Available Unit:

  • The compounding effect of falling rents and declining occupancy has put major strain on RevPAU in some of the worst performing markets. Austin RevPAU is down 8.0% on an annual basis, with Salt Lake City not far behind at -7.1% growth.
  • Nationwide RevPAU dipped 23 basis points last week alone.
  • Minneapolis has quietly been holding its own from a RevPAU perspective. Its occupancy losses have been minimal and NER is up more than 1% on an annual basis, leaving the market in positive territory in annual RevPAU.

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