A Focus on Apartment Demand
2023 has been a challenging year for Greater Fort Worth multifamily. A dramatic increase in new deliveries has coincided with a period of prolonged tepid demand. The impact on both average occupancy and average effective rent growth has been profound. In some ways, Greater Fort Worth has compared favorably to many markets around the country on the demand front. Nonetheless, the overall picture has been less-than-stellar.
All numbers will refer to conventional properties of at least fifty units.
Steady Improvement
As is typically the case, the first quarter represents the low point so far for apartment demand this year. A net loss of nearly 500 leased units in that period was the third consecutive quarter in which net absorption across Greater Fort Worth was negative. However, unlike in many markets around the country, Greater Fort Worth has managed to avoid a monthly net loss of leased units since March.
In the second quarter, just less than 1,100 net absorbed units ended the streak of negative quarterly net absorption and represented the highest quarterly total since the last three months of 2021. Also encouraging was the fact that apartment demand improved in each month of the quarter. Despite these positives, net absorption was roughly half that from the same portion of the most recent pre-COVID year in 2019. The usual seasonality for multifamily demand was not present in the 2020 through 2022 period, so 2019 provides a useful context point.
While net absorption was incrementally improving, the new construction pipeline was delivering units at a blistering pace. In four of the first six months of this year, Greater Fort Worth saw more than 1,000 new units delivered. No year of the last five had four months above the 1,000-unit threshold for new supply during the entire year. As a result of this supply pressure, overall average occupancy opened the year just above 90% but closed August slightly below 88%.
Looking Forward
More than 700 net units were absorbed in July – the highest monthly total since September of 2021. Then in August, demand slid to less than 300 net absorbed units. This decline was not unique to Fort Worth. In fact, 40% of markets around the country saw month-over-month net absorption fall in August.
Unfortunately, there seems to be little reason to expect a sustained return to the positive trend in the short term. There are three main reasons. The first is new supply. Although more than 7,000 new units have already been delivered through August, the new construction pipeline will not be slowing in the coming months. In the longer term, these units are necessary and Greater Fort Worth is well-positioned from a fundamentals perspective. But new supply will likely continue to be a headwind in the near term.
Another reason to expect lower apartment demand in the coming months is seasonality. As already mentioned, one of the distinguishing features of the last few years was the departure from usual seasonal trends. This year, though not a perfect return to the norm, there has been significant movement back toward what is generally expected. Namely, a softer first quarter followed by more robust demand in the middle quarters before cooling again in the final three months of the year. August already saw a significant decline in demand, and monthly totals in the fourth quarter will probably be even lower yet.
Lastly, macroeconomic headwinds remain, and are growing in some cases. For one, the student loan payments that were paused for a majority of the more than forty million borrowers around the country are set to resume in October. The viability of current rent levels with active student loan payments has yet to be tested.
The labor market, while still strong, has begun to show some cracks. At a time when savings rates are at their lowest in more than a decade, further degradation of the labor market would be a headwind to apartment demand. To that point, some of the inflation data has moved in the wrong direction over the last couple of months. It is possible this could prompt the Federal Reserve to raise interest rates again – a move that would further pressure the employment situation.
Takeaways
While not as rocky as in some markets around the country, Greater Fort Worth multifamily in 2023 has seen a change in trajectory relative to the last couple of years. Apartment demand showed improvement in the spring and summer periods, but it may be that the seasonal bump in demand has already come and gone.
While that is not a foregone conclusion with September data not yet available, what is more certain is that new supply will continue to be a prominent feature of the market through the end of 2023 and beyond.
With a substantial decline in overall average occupancy from the start of the year, and average effective rent growth that finished August barely above 0.5% for 2023, the industry will probably have to look next spring for any substantive reprieve to come from improved demand.
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.
