Rent and Operating Trends Week of May 15th

Inflation remains the metric most heavily scrutinized in today’s economy, as prices continue to rise at generationally high rates. However, April’s Consumer Price Index may have offered a slight glimmer of hope that price increases may begin to slow in the coming months. While one month is not a trend, the CPI in April decelerated for the first time since inflation worries gripped the economy last year. The Fed has taken action to fight inflation, increasing interest rates and tightening monetary policy. While some, including former Fed Chair Ben Bernanke, have criticized the Fed for it’s delayed response to inflation, it appears that Jay Powell’s Fed will continue to increase rates until price increases have slowed significantly. Ahead of the upcoming mid-term elections, inflation will be one of the biggest topics on voters minds.

Price increases continue in the multifamily market as well. While rent increases have helped many owners and operators meet and exceed their revenue projections, continued labor and construction materials costs have had an impact on development. Demand remains robust, with traffic and leasing continuing amid very strong occupancy and leased rates. Delays in the construction sector for both rental and for sale housing will continue to support demand in multifamily. Net effective rents continued their upward climb, increasing 40 basis points nationwide last week.

Key Takeaways – Data as of 5/15/2022:

Traffic and Leases:

• Traffic and leases were mostly flat once again last week. Nationwide, properties are averaging just under 10 tours per week and converting more than 30% of all traffic into signed leases.
• With the exception of San Jose, which has maintained strong traffic in recent months, the leading metros are all in Texas and the Southeast. I expect this trend to continue as affordability remains relatively accessible in these markets. However, Atlanta is a market to watch, as regional inflation ranks second in the country, with overall prices increasing nearly 11%.
• Texas markets including Houston and Dallas remain in strong position with high traffic, steady leasing, ample available supply and average rents below the national average. These markets should continue to see strong in-migration and housing demand in the coming years.

Occupancy and Leased Percentage:

• Nationwide occupancy hovers around 95.6% as demand remains high. Occupancy and leased percentages are slightly above their 2021 levels, but I expect they will dip below last year’s mark in the coming months.
• Washington D.C. is making a comeback after being one of the weakest markets throughout the pandemic. Occupancy in the nation’s capital is up more than 110 basis points from this time last year and has once again crossed the 95% threshold. Leased percentages in Washington D.C. are also strong, currently averaging almost 97%.

Net Effective Rent:

• Net effective rent growth increased 40 basis points last week, however the annual trend in rent growth continues to decelerate. Year-over-year NER increased 13.5%.
• Concessions remain low but a significant divide exists between gateway and secondary markets. In the major coastal markets concessions are roughly 7 times greater than they are in secondary markets across the country.
• Raleigh led all markets last week as rents increased 1.1% last week alone. Las Vegas and Salt Lake City also performed well, as rents increased 90 basis points in both markets.