Stabilized Properties Holding Up Relatively Well
The last handful of months have been a roller coaster across multiple fronts. The disruption caused by COVID-19 and the economic calamity that ensued has had a profound impact on the multifamily industry and will continue to do so for some time. Using conventional properties of at least 50 units, let’s take a closer look at how stabilized properties have performed in the three-month period from March through May.
Average Occupancy and Net Absorption
Average occupancy has softened somewhat for stabilized properties since the end of May 2019 when it stood at 94%. However, unlike the Greater Fort Worth market overall, average occupancy for stabilized properties did not retract this year from March through May. A gain of around 0.3% brought the average to 93%.
Net absorption is where the drastic change has been when comparing multifamily performance from recent months to the same period in previous years. For Greater Fort Worth as a whole –including lease-up properties — the number of previously unoccupied units to be rented from March through May of 2020 was only 69% that of the same period last year. Absorption within stabilized properties was harder hit and only managed 57% of last year’s numbers Just over 600 net units were newly occupied for stabilized properties in the period.
Average Effective Rent and Concessions
The change in average effective rent growth was similarly stark. The spring months being evaluated are generally a part of the year in which much of the annual rent growth is actually achieved. Last year, Greater Fort Worth average effective rent grew by 1.7% during this period, 1.8% for stabilized properties. This year, growth turned slightly negative to the tune of a 0.2% slide for properties already stabilized. The overall market outperformed this subset of properties by adding around 0.2% to average effective rent, but that is not much of a difference given more than 2,600 new units were delivered to help increase that average.
There were just over one-quarter of stabilized properties ended May offering a lease discount. That is a marked increase from May of last year when only about 16% of properties were offering a new lease concession. Interestingly, almost all of the increase occurred before March began. In terms of average value, there was no change from March through May as the average discount held steady at 5%. Stated another way, the average concession stood at slightly below three weeks off a 12-month lease at the end of May.
For the most part, submarkets either held their ground with occupancies at the expense of rent growth, or vice versa. There are a few counterexamples, though. Stabilized properties in the North Arlington area closed May with an average occupancy of nearly 94% after adding 1.4% in the period with no change to average effective rent. The North Fort Worth submarket finished the period above 93% average occupancy as well, thanks to a 0.6% increase. At the same time, average effective rent rose by about 0.3% to end May at $1,209 per unit. In the West Fort Worth region, average occupancy closed at 91% after a 0.6% improvement, and the area managed to add 0.2% to effective rents at the average. Lastly, the North Richland Hills – Hurst – Haltom City submarket maintained stabilized average occupancy at 93% and added 0.25% to average effective rent.
Stabilized properties have held up fairly well even without significant reliance on rent concessions. Demand did fall more precipitously than for the market as a whole compared to last year, but average occupancy is a healthy 93%. Specific submarkets have largely seen average occupancy or average effective rent recede, but none lost 0.5% or more in both metrics.
Uncertainty abounds, both regarding the ultimate success of re-opening the country in the face of COVID-19 and the sudden recession the virus and the response to it have created. Greater Fort Worth has not been negatively affected to the extent of some other markets, but the area certainly has not remained unscathed. In the near term, it is clear the new supply is going to be a headwind. The area has more than 17,000 units that have already broken ground, and another 11,000 units in some phase of pre-construction that can be delayed if needed.
If the economic re-opening of the Dallas – Fort Worth area more broadly continues unabated without further restrictions required, some of the more dire prognostications may prove to be incorrect. If the path back from the coronavirus ends up being rockier, the outlook for Greater Fort Worth multifamily will be more in question.