Rent and Operating Trends – Week of September 10th 2023
The U.S. economy continues its steady march forward, as most key indicators have maintained their recent trends. August job growth was strong once again, as the labor force added 187,000 new jobs. The unemployment rate increased to 3.8%, but some of the increase in unemployment can be attributed to the continuous growth in labor force participation. While the labor force is not yet back to its pre-COVID levels, participation is expanding modestly and steadily. With such tight labor conditions and new jobs being formed each month, I expect labor force participation to continue its upward trajectory in the coming months.
The Consumer Price Index will be released on Wednesday, the last inflation indicator, prior to the Fed’s next meeting. Economists are expecting inflation to increase from last month, and if this holds true, it may give the Fed more fodder to raise rates once again. While many economists believe that the Fed has already raised interest rates enough, it is clear that Jerome Powell is restocking his tool kit with more conventional monetary policy tools. The further they increase interest rates without major shocks to the economy or employment market, the more room the Fed has room to drop rates if and when they need to. In both prior recessions the Fed was forced into quantitative easing, a policy unheard of before 2008. However, with interest rates at a multidecade high, the Fed can now use traditional forms of policy easing when economic conditions deteriorate.
Apartment fundamentals were down across the board last week, a typical pattern in the late third and fourth quarter of the year. Rent growth and occupancy have stalled, while leading indicators traffic and leasing continue to fall from mid-summer highs. Likely this pattern will continue, as new developments deliver, especially in sunbelt markets.
Key Takeaways – Data as of 09/10/2023
Traffic and Leases:
- Traffic dipped below 8 tours per property nationwide last week for the first time since February.
- Only two markets, Minneapolis and Colorado Springs, registered increases in traffic, but both markets maintain average traffic well below the national average.
- The slowdown is taking place even in the strongest trafficked markets. Houston and Dallas have long been the leaders in traffic, but both markets now average fewer than 11 tours per property per week.
- The number of leases signed also fell at the national level last week.
- Tucson was the only market to see an increase in leasing activity.
Occupancy and ATR:
- Occupancy dipped one basis point nationwide last week and the national occupancy rate is 94.24%.
- High supply markets continue to struggle with occupancy as Salt Lake City and San Antonio have both lost more than 2% in occupancy over the past twelve months. Atlanta is not far behind and maintains one of the lowest overall occupancy rates in the nation.
- Denver and Chicago are holding their own, as their annual occupancy has only dipped 25 and 27 basis points respectively. While their occupancy rates are below 95%, their steady performance will likely bode well in the coming months, before we start a new leasing season next year.
Net Effective Rent:
- Net effective rents fell 10 basis points nationwide last week.
- The split between outperforming and underperforming markets continues to widen. Of the ten metros that have seen rents grow year-over-year, four of those metros saw rents increase last week. On the contrary, of the 24 metros where rents are falling on an annual basis, only one market experienced week-over-week rent growth.
- Some of the weakest performing markets on an annual basis, including Austin, Raleigh, Colorado Springs and Orlando, also saw rent declines of 40 basis points or more last week.