Rent and Operating Trends Week of May 22nd

The U.S. economy continues to adapt to a new paradigm. Easy money policies from both the Fed and Congress are behind us, inflation continues to run hot, and the rapid GDP growth that followed the COVID shutdowns has dwindled. The stock, commodity and cryptocurrency markets may still be in for a period of volatility, but the general economy seems to have ground to a slow pace. The second estimate of first quarter GDP and the April Personal Consumption Expenditures (PCE) index will both be released at the end of this week and will serve as barometers for the overall economy. GDP was initially estimated to have fallen in Q1. If the second estimate is also negative, we could be seeing the early stages of a recession sooner than many predicted. PCE is the preferred inflation measure of the Fed and will likely give us a good indication of what the Fed will do at its June meeting. Another month of high inflation will likely lead the Fed to a second consecutive 50 basis point increase in interest rates.

Multifamily fundamentals remain strong considering the softening economic conditions. I am particularly focused on the year-over-year comparisons as we move through this year’s prime rental season. While we do not see the acceleration we had last year, the annual growth rate in NER is staggering, especially given the high rents seen in 2021 that we are now comparing to. Nationwide NER is up 13.4% from last year, and the average NER is $1,892.

Key Takeaways – Data as of 5/22/2022:

Traffic and Leases:

• Traffic and Leases both picked up slightly last week and remain strong through May.
• Dallas led the top 25 markets last week, averaging nearly 13 tours per property. While almost all submarkets in Dallas are averaging double digit tours per property, the Central Dallas submarket stands out, with 16.4 tours per property on average last week. In a market known for its sprawl and well populated suburbs, the urban corridors are showing strong demand.
• While Dallas led in traffic, San Antonio led the top 25 markets in conversion ratio, as 40% of prospective tenants signed leases last week. The Far Northwest submarket led the way with a staggering 58% conversion ratio and nearly 6 new leases signed per property last week.

Occupancy and Leased Percentage:

• Nationwide occupancy and leased percentages were mostly flat last week.
• West Coast markets San Jose, San Francisco and Portland led the nation in occupancy growth, as each metro increased occupancy by at least 7 basis points.
• The urban revival story is playing out in these markets as well, as the largest occupancy increases were in submarkets including South of Market and Haight Ashbury (San Francisco), Santa Clara and Central San Jose (San Jose) and Northwest (Portland)
• Further down the coast, San Diego leads the top 25 markets in occupancy at roughly 96.8%. Riverside is not far behind with an occupancy rate of 96.5%.

Net Effective Rent:

• Nationwide NER increased 30 basis points last week.
• The strength of the multifamily market and the elevated demand for rental housing continues to be proven out through 2022. Coming into this year, I anticipated a faster return to the long-term average rent growth, especially given how strong rent growth was last year. While annual growth rates have decelerated, they remain quite high.
• 8 of the top 25 markets have year-over-year NER growth of more than 20%, and average NER is approaching $2,000 in places like Tampa and Orlando, a previously unheard-of level for these metros.