Apartment Leasing Traffic is Moderating: Worrisome or Not?

Year-over-year comparisons are part of operating apartments, but … this is a year when year-over-year comparisons were inevitably going to be unfavorable. Remember: We’re comparing against 2021, which will likely go down as the strongest year on record by the time of all of us retire.

That’s important context when monitoring your leasing traffic. It’s more than likely down compared to 2021. Nationally, guest card volumes in U.S. apartments were down 17% in 2nd quarter 2022 compared to the same time in 2021.

How much should that raise alarm bells?

Well, ask yourself this: Going into 2022, did you expect leasing traffic (or rents) to further ACCELERATE over 2021? Probably not. Everyone I spoke with expected to see normalization in 2022. We just couldn’t sustain that growth pace. The events of the last few months (inflation, rising rates, Ukraine, etc.) have just given us more clarity around the “why?” we’d see moderation.

What we’re seeing right now in terms of demand and leasing traffic (as well as rents) is pretty much in line with our forecasts going into the year – a strong year but nothing like the banner year of 2021. We’ve been making the point that 2022 will look more like the 2017-2019 era than it would the 2020-2021 era. So, for those of you watching these benchmarks in your portfolio, don’t freak out over 2022 comparisons versus 2021. Zoom out and look to 2016-2019, too.

When looking at leasing traffic, 2022 looks similar to 2019, despite the fact that availability is much more limited today than it was in 2019. (For this particular metric, we’re measuring traffic in terms of guest cards, and a prospect is less likely to advance to guest card status if an apartment property doesn’t have a preferred unit type available in the prospect’s time frame.)

We said back in 2020-2021 that COVID-19 (and the resulting jolt to work-from-home/work-from-anywhere) likely pushed forward future housing demand, people accelerating moves that might have otherwise happened a few years later. That still holds true.

We noted last week in our 2022 Apartment Affordability report that rent-to-income ratios remained healthy at 23%. That, combined with high occupancy and a high rent collections rate), suggests affordability has been more of a tailwind than a headwind, despite narratives suggesting otherwise. Additionally, the year-over-year drop in leasing traffic came in all asset classes and in most markets across the country – regardless of price point, which again points to other drivers.

So, it’d be a mistake the interpret the normalization trend of 2022 as a reaction to price. The other factors noted above are much bigger influencers. But we should also acknowledge that while there’s still ample demand at today’s rent levels, the laws of price elasticity teach us that each rent increase does contract the total potential pool of demand somewhat.

Bottom line is that the leasing traffic numbers support a storyline of “moderation” or “normalization” rather than harsher descriptions like “slowdown.” The peak is likely in the rearview mirror, though conditions remain very healthy for now.

But we’ll also remind everyone again that there is some risk here. Wage growth has been a huge driver in apartment performance. Should the job market sputter and wage growth flatten, that’s a lose/lose scenario for both apartment operators and for renters. We also need watch rising expenses for other essentials, namely food and gas, and how that impacts consumer confidence (spending and household formation) as well as business confidence (hiring and pay).

All this is to say that while the numbers are “as expected” so far in 2022 (and better than expected to many of our peers who projected much deeper drops in rent growth this year), that isn’t a guarantee that the second half of 2022 will look the same.