Rent and Operating Trends – Week of September 3rd 2023
The U.S. economy continues its steady growth as the calendar turns to September. While monetary policy is still up in the air, and as a result investment markets remain turbulent, major economic fundamentals have stabilized. The Personal Consumption Expenditures Index increased by 3.3% on an annualized basis, but the 0.2% monthly increase in July is in line with the Fed’s target rate of inflation. Second quarter GDP was revised downward to 2.1% annualized from 2.4% the previous month. Despite the slight reduction, overall growth remains steady. August job growth will be released on Friday, and economists anticipate around 230,000 new jobs to be added. Slow economic growth will likely continue for the rest of the year, as consumer spending remains strong, and employment remains historically tight.
Most multifamily metrics were flat last week at the national level, as the industry continues to stall in the second half of the year. The nationwide apartment industry is in a glass half full, glass half empty scenario, as fundamentals are not falling through the floor, yet growth is limited to a select few locations. Apartment performance in coastal and midwestern MSAs is outpacing sunbelt markets, as new supply has wreaked havoc on several urban submarkets in southern and southwestern MSAs. Demand remains steady but cannot keep up with the pace of deliveries in these markets.
Key Takeaways – Data as of 09/03/2023
Traffic and Leases:
- Traffic fell slightly, while leasing activity remained flat at the national level last week.
- Salt Lake City saw the largest increase in traffic last week, picking up almost a full tour per property last week alone.
- Only four markets registered an increase in traffic. In addition to Salt Lake City, Colorado Springs, Nashville, and Seattle all saw traffic rise modestly.
- Similarly, only four markets had an increase in leases signed last week. Portland led all MSAs, picking up nearly a third of a lease per property, while Salt Lake City, Las Vegas and New York all saw leasing increase by 0.1 new lease per property.
- Traffic fell the fastest in Denver last week, and leasing activity dropped the most in San Francisco.
Occupancy and ATR:
- Occupancy was flat last week, holding firm at 94.25% nationwide.
- Tucson had a strong week, picking up 35 basis points in occupancy. 13 of the market tracked by Radix Research gained occupancy last week.
- Charleston and Jacksonville were the weakest performing markets, as each market lost at least 14 basis points of occupancy.
- As we noted in this week’s Chart of the Week, new supply is heavily concentrated in the sunbelt and a few Gateway markets. Interestingly, five of the top ten markets for new supply are in the bottom 10 for overall occupancy, meaning places like Dallas, Houston, Austin and Atlanta, markets with low occupancy, have even more supply coming online in the next few months to contend with. Conversely, four of the top ten markets for new supply are in the top ten markets for occupancy. New York, Washington, D.C., Los Angeles and Seattle have a lot of new supply coming online but maintain healthy occupancy levels and may be able to better absorb the new deliveries.
Net Effective Rent:
- Net effective rent was flat last week at the nationwide level and remains down 1.5% on a year-over-year basis.
- Minneapolis led all markets as rents increased 40 basis points last week.
- New York was the weakest performing market with rents dropping 1.1% last week alone. The loss takes New York’s annual rent growth to 0%.
- The seasonal slowdown is impacting almost all markets. Tucson is the only market nationwide to register more than 3% rent growth on an annual basis. By contrast, 14 markets saw rents fall by more than 3% since last September.