Price Class Performance in Greater Fort Worth
The major multifamily story for the Greater Fort Worth area over the last couple of years is the volume of new supply that has been delivered. Because new properties at the top of the market affect the classification of existing properties, the impact of new units is felt across the board. Let’s have a look at the last five year-over-year periods, as of the end of April.
ALN assigns a price classification* of A, B, C, or D based on each property’s market percentile for average effective rent. Only conventional properties with at least 50 units will be included in the figures below.
Price Class A
More than 11,500 new units comprising 46 new properties have been added to this group in the last five years. For some perspective on that, there were only about 12,500 units in 52 Class A properties total in April of 2014. Net absorption** has been strong in this price class over the last 12 months, with more than 3,100 newly rented units. That’s nearly double the total for any of the other 12-month periods over the last five years and follows the nearly 1,800 absorbed units from the prior 12 months. Despite this strong demand, the pace of new supply has easily outpaced it. The result is an average occupancy in this top price class of about 78% to end April 2019. That low average occupancy is after a year-over-year decline in four of the last five years including annual retractions of at least 3% in the last 36 months.
Over the last five years, the average effective rent per unit for a Class A unit has gone up by about $300 per month. As of the end of April, the average effective rent was up to just over $1,400 per month. Rents have jumped by nearly 7% since April 2018, surpassed only by the 7.5% growth between April 2016 and April 2017. Interestingly, in the 12-month period in between, from April 2017 to April 2018, Class A properties managed less than 1% rent appreciation thanks to a large expansion in the number of properties offering a rent concession.
Price Class B
Price Class B has also seen a decline in average occupancy, but only by about 3%. This group ended April 2019 at just above 90% for average occupancy—a decline of about 1.5% year-over-year. Net absorption has been strong, with the last two 12-month periods combining for just under 2,000 newly rented units.
Effective rent growth in this price class has outpaced that of the top tier in the last five years. The average 12-month growth rate is about 5.7%, with no period below 3.5%. In terms of dollars, average monthly rent has increased by almost $300 per unit since April 2014. As of the end of April 2019, the average effective rent for Class B properties sits at about $1,200 per month. Unlike Class A properties, fewer Class B tier properties are currently offering a rent concession than in prior years. In fact, around one-third of Class B properties were offering a discount in April of 2014. That is now down to about 15%.
Price Classes C & D
Average occupancy in Class C has been remarkably stable for the last five years. After a 30-basis point increase during that time, average occupancy ended April at just over 94%. For Class D properties, the average 12-month fluctuation is slightly larger, and the result has been an increase of a little more than 2% in average occupancy since April 2014—ending up at just above 93%. Net absorption stands at about 1,500 units and 1,200 units respectively for the Class C and Class D categories, but each has experienced a loss in net rented units over the last 24-months.
Both classifications managed about 6% average effective rent growth for the last five annual periods, but much of that growth came from 2014 to 2017. The fact that 2017 was also when the volume of new construction deliveries increased substantially certainly isn’t a coincidence. The average effective rent per unit amongst Class C properties ended April at just over $1,000 per month, while that figure is just under $900 per month for the bottom tier.
At the top of the market, demand remains strong and on an upward trajectory but continues to fall short of the pace of new supply. This has had a strong impact on average occupancy, but effective rent growth remains robust. Demand is healthy in Class B based on rent growth, sparse concessions, and high absorption. It certainly appears as though it’s this category that operates in the sweet spot for residents at the moment.
Rent growth has slowed lately in the lower two tiers. This isn’t surprising, as rents have appreciated more than 30% in both Class C and Class D over the last five years. Average occupancy remains good, but we are now seeing concessions creep back in.
New deliveries are going to continue putting pressure on occupancies, and the Greater Fort Worth area now looks to be somewhat sensitive to any reductions in demand or negative macroeconomic changes.