Industry Market Update: Feb 2024
A Retrospective on a Challenging 2023
Another year is in the books, and what a year it was for the multifamily industry. Nationally, apartment demand rebounded considerably from the basement level of 2022 but finished the year well below the normal range. The new construction pipeline continued to ramp up deliveries and average occupancy continued its slide as a result. The downward pressure on occupancy from low demand and high supply was enough to bring rent growth crashing back down to Earth after its time in the stratosphere during 2021 and 2022. Greater Fort Worth mirrored these national trends fairly closely but differed in certain ways as well.
All numbers will refer to conventional properties of at least 50 units.
New Supply
More than 9,500 new units were delivered across Greater Fort Worth in 2023. This level of new supply was the most for any year in more than two decades. Last year was the fourth year of a new supply boom that began in earnest in 2020. In those four years, approximately 31,000 new units were delivered.
A feature of 2023 that made it a little bit different in terms of new supply aside from the scale of deliveries was the increase in new units entering the market outside the Class A space. ALN assigns a price class based on a property’s market-level percentile rank for average effective rent by square foot. The top 12% of properties are assigned to Class A. About 3,900 new units entered the market within the Class A subset last year – the most of any recent year.
However, about 2,800 new units were delivered in the Class B price tier and another 2,200 new units entered in the Class C space. Both 2023 totals were higher than in 2022. Only 2021 Class B new supply was higher within the last five years for either of these two price tiers. Part of this development was due to the geographic spread of new units outside of the highest priced submarkets.
The South Fort Worth and West Fort Worth submarkets each had notable new supply last year, and each area ended the year with an average effective rent about $150 lower than the market-level average. Similarly, the Denton – Corinth area, which led the way in 2023 new units with more than 1,700, closed 2023 with an average effective rent only slightly above the market average.
Net Absorption and Average Occupancy
At a time when new supply was at its highest level in decades, apartment demand was making incremental progress from its 2022 total – which was the lowest since 2009. Net absorption of around 1,900 units was more than double the roughly 800 net units from 2022 but was otherwise the lowest annual figure since 2017. This aligned with what was observed nationally: low demand in 2023 but considerably better, at least on a percentage basis, than it was in 2022.
Strong improvement occurred across nearly all price classes last year. For Class A, net absorption of about 1,700 units was a 76% increase from 2022. For Class B, demand fell last year from about 1,800 net absorbed units in 2022 to just over 900 net units in 2023. This stumble in demand was unfortunately timed given the new supply picture for the Class B subset last year. In the workforce housing segments demand improved year-over-year. Class C managed to narrowly avoid negative territory for a second consecutive year while the Class D group was unable to do the same but shed only about 700 net leased units rather than the nearly 1,100 from 2022.
Overall average occupancy for Greater Fort Worth declined by 3.5% last year after a 2.6% decrease in 2022. The last two years have seen the worst average occupancy slide of any two-year period going back to the year 2000. However, the 2001 through 2004 period remains the longest consecutive stretch of average occupancy declines in that same 23-year period. For properties that entered the year already stabilized, a 1.8% decline last year brought average occupancy to 91% - its lowest year-end finish since 2010.
Average Effective Rent and Lease Concessions
As would be expected given the performance across the aforementioned metrics, average effective rent growth for new leases finally ran out of steam last year. Greater Fort Worth underperformed the national result of a 1% gain with a 1.4% decline in the period. Last year’s decline was the first annual loss since 2009 when the average effective rent for new leases finished the year at $644.
Of the 12 ALN submarkets for Greater Fort Worth, the 3.2% increase in the West Fort Worth area was the sole gain. The Central Arlington region managed to finish the year unchanged. Otherwise, every submarket lost ground last year. East Forth Worth and Central Fort Worth led the way with declines above 4%.
Lease concessions played an increasingly prominent role in the market last year. The availability of discounts for new leases more than doubled and the year closed with one-third of conventional properties offering a concession package. Not since 2013 has a year ended with discount availability so high, though, 2020 came close.
Takeaways
2023 was a tough year for Greater Fort Worth multifamily. While it is true that apartment demand rebounded nicely on a percentage basis, the improvement was not enough to bring the market to its longer-term average or to even approach offsetting new supply. The result was downward pressure on average occupancy for a second straight year and the end to an historic run for rent growth.
Looking ahead to 2024, the new construction pipeline is set to remain very active. Further improvement in apartment demand will be vital, but it is difficult to envision a scenario under which new supply does not continue to push average occupancy downward. In such an environment, rent growth will likely continue to be difficult to come by.
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.
