Stabilized Properties Face Challenges in 2023
Market conditions have softened considerably for Greater Fort Worth multifamily over the last twelve months, but those shifts have impacted various market segments in different ways. Breakdowns along price class or submarket lines are useful but another is to isolate stabilized properties.
For a closer look at just that, conventional properties of at least 50 units will be used, and only those properties that entered the period already stabilized.
Average Occupancy and Net Absorption
Through the last twelve months, a period from February 2022 through January 2023 as of this writing, average occupancy for properties that entered that period already stabilized has declined by roughly 3%. This decrease meant that stabilized occupancy finished January just below 93%, the first finish below 93% for any January since 2020. The decrease in occupancy offset the gains of the previous twenty-four months almost to the decimal point.
The negative move came as stabilized properties shed about 5,000 net leased units over the last year. Of the last five twelve-month periods, this loss was the worst result by a wide margin. For context, the second-worst net absorption total of the last five years was a net loss of about 1,100 leased units from February 2019 through January of 2020.
Negative net absorption for stabilized properties has occurred across the price classes, with the Class C subset leading the way to the tune of around 2,100 net leased units lost. Notably, the negative absorption has accelerated during the last three months for all four price tiers except for Class D. For stabilized Class A properties in particular, the net loss in leased units from November through January represented the majority of the losses from the last twelve months.
Average Effective Rent and Lease Concessions
While the downward correction in demand has taken absorption totals well below the normal range from the last handful of years, the cool off with respect to rent growth has not been quite as pronounced. For properties that were already stabilized a year ago, average effective rent for new residents has increased by approximately 7%. The average stabilized unit closed January at $1,400 per month for new leases – up $300 per month from twenty-four months ago.
A 7% annual gain was certainly well above the norm for any period prior to 2021, but nonetheless was a 60% decline in growth from the February 2021 through January 2022 period. In the last three months, rent growth has turned negative and, as with net absorption, Class C properties have born the brunt of the continued flagging of rents with a 1% decline at the average from November through January.
An increase in lease concession availability among stabilized properties has played a role in the slowing rent growth. An almost 75% increase through the last twelve months in discount availability for new residents meant that around 15% of stabilized conventional properties were offering a lease concession package at the end of January. This was still a low level of availability compared to recent history, but it is almost certain that operators will continue to increase their use of this tool in the coming months.
Takeaways
It is true that the last year has been rocky for stabilized properties as a group across Greater Fort Worth, but these properties have benefitted from entering the period in a position of strength. The 3% decline in occupancy did not result in an average dramatically below the norm, but rather returned the average to a fairly standard level. The same principle holds true with regard to rent growth. While it is the case that rent growth for stabilized properties has been negative over the last few months, the result was that the annual gain moved from slightly above 7% to slightly below 7%.
With apartment demand expected to remain somewhat muted this year, stabilized properties are looking at a 2023 in which there will be some pressure from new supply at the top of the market and at a time when the excess occupancy from 2021 has now been unwound. The picture is certainly not all one of doom and gloom, but look for lease concession availability to continue to grow in the coming months and for rent growth to remain subdued.
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.
