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Small Southeastern Market Demand Remains Strong

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Small Southeastern Market Demand Remains Strong

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Chris Nebenzahl

As the U.S. economy continues to progress steadily, the public eye will likely shift toward the upcoming election and geopolitical risk that has emerged in recent months and years. Congress just passed an additional aid bill for Ukraine and has been involved indirectly in the growing conflict in the middle east. Both wars will be influential on the U.S. economy, and continued escalation could likely increase the U.S.’ involvement. While headlines have been muted related to the presidential election so far this year, that is likely to change as we near the halfway point in 2024. The election is about 6 months away, and the political fervor will certainly heat up. However, the economy stands on very solid footing despite tight monetary policy.

Key multifamily indicators were mostly flat last week. With demand outperforming expectations, some markets are seeing healthy fundamental growth thus far this year. Markets that are oversaturated with new supply are also doing better than expected, even if growth has yet to emerge. Multifamily permitting has fallen drastically in most markets since 2022, but with recent demand elevated, I would expect permits and starts to pick up, even though developers are still fighting an uphill battle due to elevated financing costs.

Key Takeaways – Data as of 4/21/2024

Traffic and Leases:

  • Nationwide traffic was unchanged last week, yet material gains were made in a number of smaller markets. Greenville, SC led all markets picking up nearly a full tour per property last week. Minneapolis, Riverside, and Huntsville also had strong weeks as traffic increased significantly.
  • Another small southeastern market, Wilmington, NC, led the nation in new leasing activity. Not only is the metro averaging more than 2.5 new leases signed per property per week, but its conversion ratio is above 40%, making it one of the most efficient markets in the nation as well.

Occupancy and ATR:

  • The national occupancy rate increased 1 basis point last week to 93.88%.
  • Greenville, SC also led all markets in weekly occupancy gain, adding 29 basis points of occupancy last week alone. Huntsville ranked second, adding 26 basis points to its market occupancy rate last week. This is a good indication of continued demand across the southeast in both large and small markets. Huntsville has been among the weakest markets for rent growth in recent months, but the uptick in traffic and occupancy is a good indicator for the market’s recovery.
  • As another indicator of changing momentum, Midland, TX had the weakest occupancy performance in the nation last week, losing 41 basis points. It also struggled with traffic and leasing falling meaningfully. The price of oil remains high above $80 per barrel, which should keep domestic production elevated and thus apartment demand in Midland will remain high. However, the market has proven to be one of the most volatile for apartment performance.

Net Effective Rent:

  • Rents increased 10 basis points last week nationwide, bringing the national average net effective rent to $1,817.
  • Sacramento had a strong week, as rents increased 1.5%. The California capital continues its run of steady performance. While the migration trend from the Bay Area dates back well before COVID, the steady growth of the central northern California market continues. Average net effective rents remain about $1,000 cheaper in Sacramento compared to San Francisco, and the affordability remains a key component for residents leaving the Bay Area but staying in California.
  • Continuing on the theme of the traffic, leasing and occupancy numbers, small southeastern markets posted strong rent gains last week. Wilmington, Chattanooga, Nashville and Charleston all had rents increase by 50 basis points or more last week. Despite the growth, Wilmington and Nashville rents are still down by 3% or more on an annual basis.

Revenue Per Available Unit:

  • RevPAU also grew by 10 basis points last week, and the annual loss was trimmed to 1.8%.
  • Patience will be the name of the game as RevPAU recovers from its recent bottom, but the elevated demand data is a positive indicator for future revenue growth.
  • On an annual basis, Austin, Huntsville and Atlanta remain the three weakest RevPAU markets in the nation, but short-term performance is giving these markets reasons to be optimistic. Mostly flat and slightly positive revenue growth has emerged in recent weeks. These markets will be under supply pressure for the remainder of the year and well into next year, so stable fundamentals are worth noting, even if it will take several months before we see growth.

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