Market Update - Nov 2021
Rents Continued Their Climb in the Third Quarter
Average effective rent growth through the first half of the year for Greater Fort Worth was almost 7% on the back of skyrocketing apartment demand. Though net absorption slowed somewhat in the third quarter (Q3), rent growth continued its upward trajectory.
As always, numbers will refer to conventional properties of at least 50 units.
New Supply and Net Absorption
A little more than 1,800 new units were delivered in the third quarter, up from roughly 1,200 new units from April through June. Only half of Greater Fort Worth submarkets saw any new supply in the period. Approximately 650 new units in the South Arlington region were the most for any submarket, followed by about 350 new units in North Arlington and just under 300 units in West Fort Worth.
Net absorption totaled around 4,500 units in the period. This was slightly less than the 4,900 net units from the second quarter, but significantly outpaced Q3 demand from recent years. It is important to remember that the apartment demand recovery began in the summer of 2020, so net absorption in the third quarter of 2020 was already unusually high. Even so, this year’s total outpaced last year by around 700 units. As a result, average occupancy rose by 1.6% to close September at 93%.
Demand was strongest in the Class A and Class B subsets. This was true both in terms of net absorbed units and absorbed units as a percent of available vacant units. However, that is not to say the bottom two price tiers struggled. Class C net absorption surpassed that from the third quarter of 2020 and was more than 1,000 units higher than the slight loss of rented units from the same portion of 2019. Class D properties did not outperform last year but roughly matched the level of demand.
Average Effective Rent and Lease Concessions
The rent growth metric was the one to diverge from previous years most significantly. After adding 0.1% to average effective rent in Q3 2019, and 1% in Q3 2020, Greater Fort Worth's average effective rent rose 6.2% in Q3 2021. The average monthly rent closed in September at $1,267 and effective rent growth through the first nine months of the year topped 13%.
It was not the case that a few submarkets substantially skewed the average up and masked more tepid results in other portions of the market. Of the 12 ALN submarkets for the area, Central Arlington at 3.9% growth had the smallest increase and was one of only three not to manage at least a 5% gain. Similarly, though the numbers were most stunning in the top price classes, led by a 9.7% increase for the Class A space, the bottom tiers also saw appreciation well beyond a typical level. Class C average effective rent rose by 5.2% in the period, and the 1.9% increase in Class D was five times the 2020 value and triple the 2019 value.
A dramatic decrease in both lease concession availability and the average discount value played a role in effective rent growth. After a decline of 43% in the quarter, only 12% of conventional properties across Greater Fort Worth were offering a new lease discount at the end of September. Not only is that well below the 29% of properties offering a discount at the end of September of 2020, but it is the lowest discount availability to end any month going all the way back to the Great Recession. An almost 20% reduction is the average discount value brought the average concession package to just over two weeks off an annual lease.
The spectacular multifamily rebound continued in the third quarter for Greater Fort Worth. Deliveries ramped up and net absorption was more than up to the task, to say the least. Though apartment demand was not quite to the same level as in the second quarter, the number of previously unoccupied units leased in the period was unlike anything from this portion of the calendar in recent years. The associated impact on rents led to an average effective rent gain above 6% in the three-month period and propelled year-to-date rent growth to just over 13%. As would be expected in such an environment, lease concessions dramatically decreased as a factor in the market, hitting their lowest level of availability in more than a decade.
Strong rent growth was observed across the price classes and across the geographic range of the market. Needless to say, such strong results across all metrics like average occupancy, average effective rent, net absorption, and concession availability are positive and reflect well on the fundamental strength of the Greater Fort Worth market. However, rent growth to this extent in so short a period comes with downsides as well. Further exacerbation of existing affordability issues, particularly in the Class C space, could at some point cause demand to dampen and bring household consolidation. Another risk is increased scrutiny both from the public and from the political world. Some markets around the country are already dealing with renewed calls for so-called solutions such as rent control and source of income ordinances.
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.