April 2022 Market Update
Class B Leads the Way in Apartment Demand
After a historic 2021 for multifamily, the picture has been a bit different for many parts of the country in the new year. Through February, apartment demand nationwide is down considerably compared to both 2020 and 2021 but rent growth momentum has continued.
Greater Fort Worth has not followed that pattern to this point with apartment demand remaining relatively high. There have been some interesting developments at the price class level, especially when focusing on just the last 3 months out of the past year. At the time of this writing, those periods correspond to March 2021 through February 2022 and December 2021 through February 2022.
As a reminder, numbers will refer to conventional properties of at least 50 units.
Almost 5,200 net units have been absorbed across Greater Fort Worth over the last year, a number significantly higher than in the two previous years. That level of demand propelled average occupancy up an astounding 17% to close February at 92%. This marked the first time Class A average occupancy has been above 90% to close February since 2017. Of course, even more unusual was annual average effective rent growth of 25% for new residents within the Class A segment. The average unit ended February leasing for about $1,680 per month after being a bit under $1,350 only 24 months ago.
The winter months are typically relatively softer for multifamily, and yet, Class A demand has somewhat underperformed even the same portion of the calendar in previous years. Net absorption of a little less than 600 units fell short of the roughly 900 net units from last year but was not too far off of the just more than 600 net units from early 2020. Average effective rent growth has remained well above the normal level, with Class A properties managing a 3.9% jump just in the last three months.
Annual net absorption of around 3,500 units for Class B properties was more than the previous two years combined and drove average occupancy up by almost 4% to 92% overall. Similar to Class A, this average occupancy was the highest for this portion of the calendar since 2015. Average effective rent rose by just under 25% on an annual basis to close February at about $1,515 per month. This average represents a gain of $300 per month since February of 2020.
Demand has remained much more resilient in the Class B segment compared to the top of the market. Almost 700 new units have been absorbed in the last three months, well above last year’s total and much better than the negative value from two years ago for the same period. As a result, average occupancy has increased by 1% just in the last few months. Average effective rent growth of 2.2% has also been well above normal, but not quite to the extent as seen in Class A. Even so, monthly rent growth has picked back up in 2022 after a slowdown in November and December.
About 2,500 net absorbed units in the last 12 months was enough to push Class C average occupancy up by about 2% to just under 94% overall. The bottom two price classes almost always have higher occupancy than the top two, but even for Class C this year’s average was higher than any February since 2017. Annual average effective rent growth was 17%, bringing the average unit to around $1,270 per month - $200 more than two years ago.
Only 15 net rented units have been gained by Class C properties in the last three months. That fell short of the approximately 60 net units from the same period two years ago but was considerably better than a net loss of about 300 leased units last year. Still, average occupancy did decline by about 0.5% from December through February. Average effective rent growth in the period surpassed Class B, with a nearly 3% gain bringing the average unit to about $1,265 per month. Like the Class B segment, that average rent is about $200 more than it was in February of 2020.
Class D average occupancy finished February at 95%, the highest point in more than a decade for February, thanks to net absorption of more than 1,000 over the last 12 months. Of all the price classes, demand in this segment has most outperformed recent history. The previous year saw a net gain of less than 100 rented units, and in the 12 months before that net absorption was negative by more than 50 units. An annual average effective rent increase of more than 8% brought the average Class D unit to just over $1,040 per month, about $220 higher than 24 months ago.
Demand has slowed over the last three months, however. Fewer than 50 net units have been absorbed since the start of December and average occupancy has remained essentially unchanged. For context though, Class D net absorption was negative for this period in each of the previous two years. Rent growth has continued, as with the other price classes. Average effective rent has gained just under 2% in the last three months and has picked back up after a brief slowdown in November.
Unlike in many areas of the country, Greater Fort Worth has not experienced a downturn in apartment demand to start 2022. In fact, net absorption has outperformed the last few years.
At the price class level, while Class A and Class C properties have seen something of a reversion to the mean in demand, rent growth momentum has continued and even increased compared to Q4 2021. For Class B, both demand and rent growth remain well above normal, and the same could be said for the Class D segment even though net absorption has been relatively flat in recent months. Price pressure is likely to taper demand and rent growth at some point soon, especially within the lower two price tiers, but for now Greater Fort Worth multifamily is full steam ahead.
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.