Making Sense of a Turbulent 2020
2020 is finally in the rearview mirror, and the disruption brought on by COVID-19 and the various response measures to it had a profound impact on the multifamily industry around the country. In evaluating industry performance in Greater Fort Worth, only conventional properties of at least 50 units will be included.
New Supply and Apartment Demand
For the nation as a whole, new supply increased in 2020 compared to 2019. In Greater Fort Worth, that was especially the case. About 8,200 new units were delivered in 2020 compared to around 4,400 new units in 2019. With approximately 2,800 new units, the Central Fort Worth submarket led the way in new supply. That region was followed by the Grapevine – Roanoke – Keller area and the North Fort Worth submarket – each with about 1,200 new units delivered. All told, three-quarters of the 12 ALN submarkets for Greater Fort Worth had some level of new supply during the year.
This dramatic increase in deliveries could have been a real detriment to market performance, as was the case in various markets around the country. Fortunately, apartment demand also increased last year compared to 2019. Net absorption totaled around 6,800 units compared to approximately 4,600 units in 2019. This represented a 47% annual increase. Properties that entered the year already stabilized managed a net gain of just more than 1,400 rented units during the year. This increase in apartment demand was not quite enough to offset the jump in new supply and average occupancy declined 0.4% to 90.1% as a result. It should be noted, though, that among Class A properties, which bear the brunt of the effect of new supply, average occupancy fell by 7% during the year to 76% overall. No other price class ended the year with an average occupancy below the 90% average value for Class B.
Average Effective Rent and Lease Concessions
Much more so than in many markets around the country, average effective rent growth was in the vicinity of that from 2019. The 2.8% gain in 2020 was slightly better than the 2.6% mark hit in 2019. At the submarket level, two of the 12 submarkets managed effective rent gains above 5% while only two suffered losses. Even in the two areas to experience retractions in average effective rent, the loss was less than half of a percent.
Operators were slightly more aggressive with asking rents in 2020 than in 2019, but the Greater Fort Worth market did experience an increased reliance on rent concessions. Though not quite to the same extent as in other areas of the country, there were notable increases both in the availability of lease discounts and the average discount value. It should be noted that the availability of rent discounts had been on the rise since before the onset of the COVID-19 pandemic and this disruption should not be considered the sole cause of the continued trend. 31% of conventional properties were offering a new lease concession at the end of the year, up from 25% to start the year. This annual rate of increase matched that from 2019. Where the area underperformed relative to 2019 was in the increase in the average discount value. The average value increased by 20% during the year to a little above three weeks off of a 12-month lease.
2020 was a challenging year, and in many ways, unprecedented. Those challenges profoundly impacted the multifamily industry. Greater Fort Worth managed to avoid the tough results that became a reality for myriad markets throughout the country, thanks largely to strong demand. It is true that average occupancy declined slightly, but occupancies were largely maintained while realizing effective rent growth even in the face of an increase in new supply.
The level of success of the COVID-19 vaccine rollout and the extent to which economic activity, and life in general, can return to relative normalcy will be the main determining factor for how 2021 plays out for multifamily. The new construction pipeline is expected to continue delivering new units at about the same pace in 2021, with the potential for a small reduction compared to 2020. As a result, continued strong demand will be vital. Short of some further unexpected calamity (everyone find some wood and knock vigorously) 2020 should represent the floor for performance looking ahead through 2021.
Market Analyst – ALN Apartment Data
Jordan Brooks is a 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.