Market Update - November 2023
Apartment Demand Improved in Third Quarter
As with many markets around the country, 2023 has been a challenging year for Greater Fort Worth multifamily. The most active new construction pipeline in years has met with tepid net absorption and has pushed average occupancy downward and made rent growth hard to come by. Against this backdrop, the third quarter managed to provide at least some change: a notable improvement in apartment demand.
All numbers will refer to conventional properties of at least 50 units.
New Supply and Net Absorption
About 7,500 new units were delivered across Greater Fort Worth this year through September – more than in any recent year. Even so, the pace of deliveries slowed somewhat in the third quarter with around 1,700 new units introduced. While this level of new supply was slightly higher than in the same portion of last year, the third quarter in both 2020 and 2021 saw more deliveries.
Nearly half of ALN submarkets for Greater Fort Worth saw at least one new property in the period. The Denton-Corinth area led the way with more than 600 new units. North Fort Worth, South Fort Worth, and South Arlington each saw approximately 300 new units brought to market.
As new supply was taking a small and brief step back, apartment demand improved significantly. About 1,500 net absorbed units in the third quarter was a far cry from a net loss of more than 100 leased units in the same period last year and accounted for the vast majority of the roughly 2,100 net absorbed units this year through September.
The improvement was fairly widespread from a price class perspective. At the top of the market, around 500 net absorbed units for Class A properties and nearly 700 net absorbed units for Class B properties marked an improvement from last year. A net gain of more than 700 leased units for Class C properties not only far outpaced last year’s net loss of more than 300 leased units but was closer to the demand peaks of the 2020 and 2021 periods than even the pre-pandemic 2019 result. As a reminder, the explosion in multifamily demand that 2021 will be remembered for actually began in the back half of 2020.
Only the Class D group struggled relative to the same portion of last year. A net loss of more than 600 net leased units made it the only price class to suffer negative absorption. The result was also an underperformance compared to the third quarter of 2022.
Average Effective Rent and Lease Concessions
For the first time in 2023, quarterly average effective rent growth for new leases dipped into negative territory in the third quarter. A decline of 0.6% almost exactly matched the decrease from the final quarter of last year. The juxtaposition of improved demand and further wind coming out of the rent growth sails has not been a phenomenon unique to the Fort Worth region. In myriad markets around the country, the inverse relationship between demand and rent growth has shown up in the data as residents appear to be increasingly price sensitive.
Along these lines, rent performance across the price classes was what would be expected in just such an environment. The Class A subset led the way with a gain of 1.6% at the average. Class B largely held steady with a decline of only 0.2% in average effective rent. The workforce housing sector accounted for the declines – to the tune of a 1% loss for Class C and a 2% loss for the Class D group.
Lease concessions continued to play an increasing role as well. A double-digit increase in availability meant that September closed with almost 30% of conventional properties offering a discount for new residents. A simultaneous double-digit increase in the average concession value brought that average discount to just more than three weeks off an annual lease. That average was higher than at any time since late 2020.
The third quarter was a bit of a mixed bag for Greater Fort Worth. On the one hand, a brief slowdown in deliveries and a marked improvement in apartment demand meant that average occupancy remained unchanged in the quarter after five straight quarterly declines. On the other hand, the improvement in demand came at the expense of rent growth.
Macroeconomic headwinds, geopolitical uncertainty, and seasonal trends all point to a fourth quarter that is likely to be a challenge. Should that be the case, the third quarter will end up being a mitigating factor within a tough 2023 for multifamily.
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.