As Spring Approaches, Multifamily Metrics Continue Their Slide
Two years of low apartment demand and an active new construction pipeline have taken a toll on Greater Fort Worth multifamily occupancy and rent performance. As the traditionally softer winter period comes to a close, it remains to be seen to what extent a seasonal bounce can improve the area’s outlook. Industry performance in recent months can provide some useful context.
All numbers will refer to conventional properties of at least 50 units.
Recent Apartment Demand
Greater Fort Worth suffered a net loss of nearly 200 leased units in the three-month period from December through February. While this portion of the calendar tends to feature fairly tepid net absorption, a negative move has not been the norm over the last decade. However, relative to the net loss of more than 400 leased units in the same period a year ago, this year’s result represented improvement.
Recent improvement in apartment demand has not been simply a feature of isolating a small or cherry-picked period of time. From August of 2022 through March of 2023, six of eight months featured negative net absorption. In the eleven months since, only two months failed to add to net leased units. The issue has less to do with negative net absorption than with low positive totals.
Below the market-level data, a particular pain point has been within the price Class D space. These are market rate properties that have a unit mix-weighted average effective rent per square foot in the bottom 30% of the market. These properties suffered a net loss of more than 700 leased units from December through February. Whereas Class C properties have seen negative absorption in the three-month period but at a moderated pace relative to the twelve-month trend, the Class D struggles have worsened in recent months.
Recent Rent Performance
With net absorption in the negative and deliveries simultaneously reaching a height not seen in more than a decade for this period, average occupancy has continued its downward slide. Greater Fort Worth overall average occupancy closed February at 86% – a level not seen since December of 2009 and January of 2010 for the market. For properties that entered the year already stabilized, the average occupancy finished February at just over 90% – its lowest point since early 2011.
With occupancy slumping and net absorption still well short of the norm, average effective rent growth has been negative over the last twelve months and the last three months. The average effective rent for a new lease ended February roughly where it was in June of 2022.
The good news is that for both net absorption and average effective rent change, recent performance has been much more closely aligned with typical seasonality for the industry than was the case a year or two ago. For rent growth, the negative turn began in August of last year and worsened in each month through November. That month featured an average effective rent decline for new leases of 0.9%. December and January continued the decline but to a lesser degree. Then, after six straight months of decline, February saw a 0.1% gain.
In a typical year, rent growth would be expected to improve through the spring before a peak sometime during the summer period. Despite the short-term fundamental challenges, Greater Fort Worth may be set for a respite from negative monthly rent change until later this year.
Takeaways
Despite recent improvement in net absorption and rent performance, challenges remain for Greater Fort Worth multifamily in 2024. Perhaps chief among them is that the improvement in apartment demand has thus far been much too incremental to address the pressure coming from new supply.
From 2013 through 2017, Greater Fort Worth averaged about 2,700 new units delivered annually. In just the last three months, new supply slightly exceeded that total. 2024 will be another year of elevated deliveries, and short of repeating the historic demand of 2021, this will drive average occupancy even lower.
Within this context, and with headwinds still present from the broader economy, sustained positive rent growth is likely to be very hard to come by this year.
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.
