D-FW apartment boom shows no sign of a slowdown with 50,000 plus units on the way
Dallas-Fort Worth was already the top apartment building market in the country before starts increased by more than 95 percent in the first two months of 2017.
Thousands more apartments are on the way in North Texas.
While analysts say that the spike in apartment construction in the early months was a fluke, don’t look for a halt of apartment building in the D-FW area.
Almost 30,000 new apartments will open their doors here in 2017.
“That’s a lot of new product coming on line at once,” said Greg Willett, economist with Richardson-based apartment analyst RealPage. “Right now we have 50,000 units under construction – that is a lot even by historical standards.
“Almost every neighborhood you look at has construction activity.”
The biggest numbers of new apartments are on the way in Frisco and in central Dallas, according to the latest study by RealPage.
Almost 6,400 apartments are being built in Frisco and 5,578 apartments are under construction in central Dallas.
The Allen/McKinney area is third with another 5,319 apartments in the pipeline.
Willett thinks that the surge in apartment starts in January and February is a blip and won’t continue at that level.
“The reason for the big percentage increase was that not much was started in those two months a year ago,” he said.
Based on reports to date in 2017, North Texas is second only to the New York City area in apartment starts.
The widespread apartment construction has been easily absorbed by relocating tenants so far.
Less than 5 percent of North Texas’ rental units are empty. And average rents have gone up by almost 6 percent in the last year.
“This is the first time we have ever gotten above 5 percent rent growth in D-FW,” Willett said.
With the surge of new building, Willett is predicting that vacancies will rise slightly during the rest of the year and rent increases will moderate to about 4 percent annually across the area.
“D-FW’s incredibly strong performance will lose a little bit of momentum as deliveries accelerate,” he said.
But with employment growth in the area still running over 100,000 new jobs a year, apartment analysts and builders are optimistic that the market won’t get overbuilt.
“Dallas-Fort Worth is still at the top of the job stack,” Drew Kile with Institutional Property Advisors told apartment executives at a breakfast meeting this week in Dallas. “We are projecting 100,000 new renters over the next five years in D-FW.”
Kile said that North Texas’ population is forecast to rise by more than 780,000 people by 2022.
Some apartment developers say they are already cutting back on new starts because of the huge volume of construction.
“We believe we are beyond peak starts this cycle in D-FW,” said Steve Bancroft, senior managing director with Trammell Crow Residential. “The Trammell Crow Residential development pipeline is down about 30 percent to 35 percent on a same store basis, and that includes Dallas.
Bancroft said he’s not seeing as many viable apartment development opportunities in the Dallas area.
“The good news is that D-FW still needs the housing,” he said.
Dallas apartment builder Encore Multi-Family LLC is looking for new deals in other markets outside of Texas.
“We are in Denver and Phoenix, and I’m on the trail in Tampa, Orlando, Raleigh and Charlotte,” said Encore CEO Bradley Miller. “The building sites are picked over, they are expensive and the construction costs are up.’
Miller said he’s being more cautious about development.
“At this stage of the cycle, the one thing you don’t want to be is stupid,” he “We’ve had the mentality of ‘build it and they will come,’ and they have come.
“But what happens when they don’t?”
Most of the current apartment building is in the Dallas area.
“It does appear that the Dallas side of the metro area is slightly down in terms of permits while the Fort Worth side is slightly higher,” said Matt Brendel, Senior Vice President with apartment builder JPI. “We do not see enough data to indicate an upward trend.”
Apartment operators say that business from prospective renters is holding up.
“We haven’t’ seen a big decline in traffic,” said Rick Graf, president of Pinnacle Living. “There is still a lot of job activity and people coming in from other places looking for apartments.”
But with rents in North Texas rising on average more than a third in the last 10 years, apartment developers and operators worry that incomes aren’t keeping up.
Average apartment rents in the D-FW area now top $1,050 a month.
“How do everyday people – even those making pretty good money – continue to elevate the percentage of their income going to rent?” Graf said. “At the end of the day you have to have people who can afford and are willing to pay that much rent.”
By Steve Brown