It has been a busy year for the Dallas-Fort Worth multifamily market, and it looks like it will continue to be so with additional construction deliveries coming down the line in Q3/Q4 and continued record low vacancies across the metro.
“[The DFW multifamily market] is an airplane flying on three engines (resident gains, job growth and corporate relocations), and all engines are go,” CBRE Director of Research and Analysis Robert Kramp said.
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Job growth over the last few years has been smiling on the city’s economy, and the multifamily market has benefited from a strong increase in demand due to people coming to the metro in droves. As a result, vacancy has been hovering around a record low of 4.9% for the last year despite huge numbers of construction deliveries over the last few years.
JLL research on the national multifamily market puts DFW near the middle of the “peaking market” phase on its market clock, meaning DFW multifamily is still on its way up, but may top out soon. Other cities in our bracket include Atlanta, Los Angeles, Orange County, Orlando and Seattle-Bellevue.
Here are some quick-hit facts about DFW’s multifamily market and a brief look at the near future.
Rent growth is still good, but it has softened due to construction deliveries.
According to Marcus & Millichap research, the delivery of extra apartment units drove down rent growth from 7% to about 5%. However, Kramp said rent growth in Dallas and Fort Worth need to be looked at separately because Dallas has so many properties coming out of the construction pipeline that it is not quite fair to lump a more stable market like Fort Worth in with it. Most of the softening in that number is due to Dallas and its new deliveries.
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Construction and delivery rates have declined, absorption is very high and vacancy is very low.
CBRE research indicates construction starts fell by 5,000 units, and deliveries fell from 7,100 units to just under 4,700 units. Meanwhile, absorption shot up from about 4,000 units to 9,659 units from Q1 to Q2. Vacancy is at 4.3% overall for the metro, according to Marcus & Millichap data, and some submarkets are registering vacancy rates under 2%. (Northwest Dallas is the lowest with a 1.3% vacancy rate.) Kramp said the decrease in deliveries is a result of the general squeeze on construction in Texas.
Strong job growth is bolstering the multifamily market
Jobs are growing 3.2% year-over-year, according to CBRE research. In the last 12 months, Dallas has added 96,700 jobs (an increase of 2.8%), according to the Bureau of Labor Statistics. That has been driving the construction of units in DFW since 2013, and the growth rate does not look like it will slow down soon.
Notes on the near future
According to Kramp, the fall in construction deliveries in Q2 is most likely going to result in a delivery spike in Q3 and Q4 as projects that were behind schedule finish up. This will push rents down for a bit, but in mid-2018 and into 2019 the effects of a lengthened construction pipeline should kick in and rents will climb again. He said a slowdown in construction from cost and labor availability would be good for the market because it will enforce equilibrium between supply and demand.
“If you thin out the leasing cycle by protracting the rate of completions for new construction, what you have done is created more of an equilibrium between new supply and new demand,” Kramp said.
Learn more about the multifamily market at the Bisnow Dallas-Fort Worth Multifamily Explosion event Oct. 11.
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