Leading Multifamily Developer Says It Is Time To Exercise More Discipline In DFW
The Dallas-Fort Worth multifamily market is headed for a slight correction, according to Dallas' most active multifamily developer, JPI Senior Vice President and Development Partner Matt Brendel. Brendel expects rent growth will slow from outsized returns of 6% to 3% rent growth and occupancy will dip as more product in America's biggest pipeline continues to deliver.
“What you’re seeing in the market today is, from a multifamily fundamental standpoint, we’ve probably hit the peak of supply … you’re going to see occupancies, because of the peak of supply, dip a little bit, but they’re still expected to remain above the long-term historical average,” Brendel said.
According to him, now that supply has caught up with demand in the multifamily market, the rapid rent growth developers have enjoyed is coming to an end. Not a terrible end, but an end nonetheless.
“Demand was outstripping supply for so long that supply [did not have the] opportunity to catch up to demand. Now, this market has finally done that, so you’re going to start seeing the market revert a little bit back closer to historical averages,” Brendel said.
The drop in occupancy and rent growth does not mean the market is unhealthy, on the contrary Brendel thinks this is a normal stabilization of a booming market. He said since job growth is still good (roughly 85,000 jobs are expected to be created annually), demand will still absorb the roughly 20,000 expected units in the pipeline.
Brendel said this contraction means developers have to be even more careful than usual when selecting sites and planning product. He said maintaining a drive for creativity and innovation in product types is crucial as profit margins shrink over the next few quarters. He said now more than ever in this cycle, the market will not be forgiving of lazy development.
“Land costs aren’t going down; hard costs are going up; rent growth is going down, so you have to look at [a] site, look at what is the highest and best use of that site,” Brendel said. “I think it is incumbent on developers not to just put the same product type on any piece of land they find. It needs to be a thoughtful, well-thought-out plan … as the market matures, it becomes even more important not to just rest on our laurels, but to continue to innovate and evolve as the market evolves.”
CORRECTION, FEB. 23, 9:45 A.M. CT: A previous version of this article misstated the number of units in Dallas-Fort Worth's multifamily pipeline. The article has been updated.