Rebound Felt Across the Price Classes
At the national level, historic multifamily demand has fueled rent growth not seen in decades so far in 2021, and Greater Fort Worth has certainly not been an exception. Although the Class A subset is leading the way across myriad performance metrics, the broad-based nature of the rebound has been striking.
As always, numbers will refer to conventional properties of at least 50 units.
Class A
Class A properties have taken advantage of a slight slowdown in new deliveries compared to recent years with a 10% average occupancy improvement to end July at 88%. This level of occupancy is substantially above the typical range for Greater Fort Worth Class A properties established over the last handful of years. A small decrease in new supply was certainly part of the story, but strong demand also played a major role. Net absorption of just over 2,900 units since the start of the year not only easily outpaced the roughly 1,600 units from last year, but also the 1,800 units from the same portion of 2019.
Less new supply and more apartment demand led to an average effective rent gain of 14% through July for Class A as a group. Needless to say, this level of rent growth hardly even compares to the approximately 2.5% from each of the previous two years during the same period. A large part of the rent gain came from increased market rent which gained 10% compared to the 14% increase in average effective rent. A dramatic drawdown in lease concessions accounted for the rest. Discount availability fell 55% to only about one-quarter of properties offering while the average discount value dropped by 35% to a little more than three weeks off an annual lease. Both metrics ended July lower than in the pre-pandemic July of 2019.
Class B
Mostly due to higher pre-existing average occupancy, at 3.7% the gain through July for Class B was significantly lower than Class A. Even so, an occupancy increase of that magnitude dwarfed the movement of the last few years and followed up a 0.4% decrease from the same period in 2020. Average occupancy ended July at 92% despite about the same level of new supply as in recent years. Demand was nearly double that from last year and almost triple that of 2019 through July. Net absorption of just over 2,400 units this year was second only to Class A after trailing both the top tier and Class C in each of the last two years.
Rent growth for Class B properties nearly matched that of the Class A segment. A 12% gain brought the average unit to $1,381 to close July. As with the top tier, market rent growth was nearly as high – 11% in this case. Lease concessions have also moved dramatically. A 67% decrease in discount availability left only 10% of Class B properties offering a lease concession at the end of July. This was less than half the share from July of 2019. The average concession value did tick up by 3% to just a hair over three weeks off an annual lease, an indication that the properties that are still offering a discount are facing at least some challenges.
Classes C and D
Each of these price classes closed July with average occupancy right around 94%. Class C properties experienced an increase in absorption similar to the top two tiers while Class D underperformed compared to the last few years. 1,700 net units absorbed was nearly double that of the same period in 2020 and was more than double the value from 2019. For Class D, demand was in positive territory, but less than 50 net units were absorbed through July.
As would be expected, rent growth has been more muted in these lower two price tiers. Having said that, the 6% Class C gain was well beyond anything from recent years and is likely to further pressure affordability issues. For Class D, a 3% gain was closer to recent history, but still 1% higher than in either of the last two years. Unlike in many markets around the country, both discount availability and the average discount value have decreased this year for Class C and for Class D. As a result, concession availability closed July lower than at the end of July 2019 for each group.
Takeaways
The multifamily rebound in 2021 has been robust, to say the least. Greater Fort Worth has been a prime example, with apartment demand and rent growth reaching stunning heights for the year before summer is even over. Encouragingly, the positive results have not been only concentrated at the top of the market. Each of the top three price classes have far surpassed recent demand and rent growth, with Class D being the only group to absorb less units through July than in recent years. Even so, with an average occupancy of 94%, the relatively tepid demand has been far from a crisis.
One cautionary note that must be struck, though, is simply that the rate of rent growth in so short a time is not only unlikely to be sustainable but will almost certainly exacerbate affordability issues – especially in the Class C subset.
Jordan Brooks
Senior Market Analyst – ALN Apartment Data
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.
