The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.
The blog's authors include staff from the Atlanta Fed’s Regional Economic Information Network and Public Affairs Department.
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Trading Down and Out: Does This Trend Really Hold for Most Markets?
The latest edition of EconSouth—the Atlanta Fed's quarterly economics and business magazine that examines regional, national, and international topics pertinent to the Southeast—offered quite a focus on the real estate sector.
- The Fed @ Issue column presented a balanced case for optimism and concern about the housing recovery.
- The Regional Economic Information Network (or REIN) section of the issue offered further insight into home price indices in the Data Corner department. Further, interviews with the Atlanta Fed's six regional executives in the On the Ground department homed in on more granular, market-based outlooks for the housing recovery.
- The comeback of the South Florida condominium market was profiled in the article "Does the Return of the Cranes Signal a Housing Revival in South Florida?"
The "Return of the Cranes" article included a brief sidebar titled "Trading Down and Out: A Quick Look at Recent Rental Market Trends." It highlighted a recent trend where, as occupancy rates increase and effective rents rise, multifamily tenants in many markets have begun to move out of Class A properties into Class B properties, Class C properties, or out altogether (and into single-family properties).
Business contacts constantly remind us that real estate is local and stress that conditions vary by market and even submarket. With that in mind, I wondered how multifamily fundamentals for a sampling of markets across the Southeast might stack up. Would a closer look at vacancy rates and asking rents for these markets reveal conditions ripe for tenants to move down or out? If so, would the trend in fundamentals be similar between larger, primary markets and smaller, tertiary markets?
The short answer is yes.
In primary markets across the Southeast, like New Orleans and Jacksonville, the year-over-year percent change calculation shows that vacancy rates in larger markets have indeed been on a downward trajectory (see the chart).
In tertiary markets across the Southeast, like Huntsville and Biloxi-Gulfport, the year-over-year percent change calculation shows that vacancy rates in smaller markets have also been on the decline (see the chart).
Asking rents in primary markets across the Southeast have been on the rise, as reflected by the year-over-year percent change calculation. It is important to note that asking rents are defined as the "advertised rental rates for available space" before rental concessions are taken into consideration (see the chart).
A similar trend holds true for asking rents in tertiary markets across the Southeast (see the chart).
Perhaps not surprisingly, this trend of low vacancy rates and rising rents was echoed by markets large and small across the region. As one might expect, there are occasional outliers to the general trend. While the outliers should serve as an important reminder that real estate is definitely local and conditions do vary between markets, it is reassuring to know that high-level takeaways—for example, multifamily tenants are likely trading down and out due to high occupancy rates/rising rents—hold true for the vast majority of markets.
By Jessica Dill, a senior analyst in the Atlanta Fed's Center for Real Estate Analytics
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