A Final Look at 2022
Another year is in the books, and what a year it was. The volatility that began with the onset of the COVID-19 pandemic in 2020 carried through to the historic recovery year of 2021, and also persisted into 2022. Last year, national rent growth momentum slowed – particularly in the back half of the year. The most significant change was to apartment demand. Net absorption was low all year but softened even further in the final quarter.
All numbers will refer to conventional properties of at least 50 units.
New Supply and Net Absorption
The delivery of new units declined somewhat for Greater Fort Worth relative to 2020 and 2021 but new supply remained in the typical prior range for the market. Of the approximately 6,700 new units, just more than 1,700 were in the North Fort Worth submarket. Other areas with notable new supply included about 1,500 new units in the Denton – Corinth region and roughly 1,200 new units in South Fort Worth. In total, six of the twelve ALN submarkets for Greater Fort Worth saw some level of new supply last year.
As already mentioned, the major component of change in 2022 was apartment demand. Unfortunately, Greater Fort Worth was unable to sidestep the national trend and a 92% drop in net absorption from 2021 was the result. Only 1,000 net units were absorbed all year across the market, the worst mark of the last ten years. At mid-year Greater Fort Worth had absorbed 2,000 net units, so the back half of the year was the pain point – particularly in the fourth quarter. The effect of a normal volume of new supply and very abnormally low demand was an average occupancy decline of almost 3% to bring average occupancy to 90% to finish December.
Differences were apparent at the price class level. Class A properties suffered a decline in demand from 2021, but annual net absorption of about 2,200 units last year was at least roughly in the typical range. Class B properties narrowly avoided negative absorption with just more than 700 net absorbed units. However, the workforce housing segments were not able to stay above water. The Class C and Class D segments each shed approximately 1,000 net leased units during the year.
Average Effective Rent and Lease Concessions
At the market level, average effective rent growth for new leases in 2022 was nearly cut in half compared to 2021. The 17% gain from 2021 was followed by a 9% increase in 2022 to bring the average unit to $1,425 per month for a new resident. The gains of the last two years mean that average rent closed last year $300 per month higher than at the end of 2020.
The same pattern of rent growth declining by around 50% largely held true at the price class level as well. The Class D group was the only exception. For Class D, an 11% jump in 2021 was followed up with a 9% gain in 2022. Class A properties still led the way with a 10% increase, but each price class managed rent growth of 8-10%.
Both lease concession availability and the average discount value rose in 2022. An increase in availability of about 35% from the beginning of the year resulted in just under 15% of conventional properties offering a discount for new leases at the end of the year. Despite the annual increase, discount availability remains a bit low relative to historic norms. An increase in the average discount value brought that average back to its usual level of around 5% off an annual lease, or just over 2.5 weeks off for a 12-month lease.
Takeaways
2022 was a bit of a mixed bag for Greater Fort Worth multifamily. On one hand, operators were able to capture rent growth well above the norm after a year in 2021 in which rent growth was already stratospheric. On the other hand, apartment demand clearly was not up to the pressure from rent growth and from concerns in the broader economy.
Average occupancy closed 2022 back where it was to end 2018, 2019, and 2020. In other words, the cushion accumulated from last year’s demand explosion is gone. With household financial positions having been eroded from 12 or 18 months ago, and macroeconomic challenges persisting and perhaps growing, the industry may be in for a bumpy ride in 2023.
Jordan Brooks
Senior Market Analyst – ALN Apartment Data
Jordan@alndata.com
www.alndata.com
Jordan Brooks is a Senior Market Analyst at ALN Apartment Data. In addition to speaking at affiliates around the country, Jordan writes ALN’s monthly newsletter analyzing various aspects of industry performance and contributes monthly to multiple multifamily publications. He earned a master’s degree from the University of Texas at Dallas in Business Analytics.
