Rent and Operating Trends Week of May 1st

Recession fears increased last week as the economy unexpectedly contracted in the first quarter. GDP fell 1.4%, marking the first economic decline since the COVID-19 pandemic began. Most economists will define a recession after two consecutive negative quarters, and there is a chance that Q1 GDP may yet be revised upward, however the surprising drop adds to the economic turmoil in April. Inflation continues to run high, and the Fed is expected to raise interest rates 50 basis points at their policy meeting this week. That would mark the largest single interest rate increase from the Fed since before the Great Financial Crisis. In anticipation of higher short-term rates and as the result of continued price increases, the 10-year treasury rate eclipsed three percent on Monday for the first time since 2018.

Wall Street is also hurting after the S&P 500 and NASDAQ suffered their worst month since 2008. Amazon’s stock had its worst day since 2006 at the end of April after posting weak earnings and issuing softer guidance than analysts expected. Reduced consumption coupled with increasing costs contributed to the pessimistic outlook from the e-commerce giant.

Despite the chaos in other sectors of the economy, the multifamily industry remains on solid footing and appears poised for a soft landing. Fundamentals remain strong, although NER continues to decelerate from its historic highs last year. Elevated demand is fueling continued traffic and leasing activity, which in turn is supporting steady and elevated occupancy levels.

Key Takeaways – Data as of 5/1/2022:

Traffic and Leases:

• Traffic increased modestly last week, and properties nationwide averaged 9.2 visitors.
• San Jose led the nation with the most traffic, however its conversion ratio is one of the weakest in the country.
• Houston and Dallas meanwhile rank near the top in both traffic and leases signed. The Texas metros averaged nearly 12 tours per property last week, while the average property in each market signed close to 4 leases.

Occupancy and Leased Percentage:

• The national occupancy rate fell 1 basis point last week, and remains 50 basis points above its May 2021 level. Nationwide, the leased percentage increased 4 basis points last week.
• All markets in Radix’s top 25 have an average occupancy rate of 95% or higher. The overall demand for multifamily is apparent, as occupancy remains elevated, even in markets that have historically trailed the 95% average.

Net Effective Rent:

• Rents nationwide picked up 30 basis points last week, while the year-over-year NER growth was 14.7%. While still strong, the annual growth rate continues to decelerate from meteoric levels in 2021.
• The two most expensive markets San Jose and San Francisco are continuing to exemplify the urban suburban split that is happening in many metros nationwide. Google brought employees back to the office in April, and many other tech companies are following suit. As a result, rents in San Jose jumped 60 basis points last week and 20% over the past year. Comparatively, rents in urban San Francisco increased 30 basis points last week and are up only 10.2% year-over-year.
• While overall growth remains strongest in the sunbelt, major coastal markets including San Jose, Seattle, Chicago, and Washington D.C. were all in the top 10 markets for rent growth, with weekly rents increasing 50 basis points or more.