I have lived in North Dallas—aside from college in Austin—for nearly 50 years. In fact, we moved to Dallas when LBJ Freeway was under construction and anything north of LBJ was considered the boondocks. We hunted birds just east of what is now CityLine in Richardson. The growth in North Dallas, in every respect, has been nothing less than spectacular. What once was a relatively young area has matured into one of the more dynamic areas of the country.
The northern Dallas communities offer a high quality of life and are an ideal venue for raising families. There are probably more golf courses in North Dallas than any area in Dallas-Fort Worth. Schools are one of the primary calling cards for this area as most districts are rated exemplary or outstanding.
From a purely multifamily perspective, North Dallas has evolved from a single-family dominated area to a mature/seasoned multifamily market. Many investors used to say that we could build in the northern suburbs of Dallas on an almost unabated basis. No longer can this be said.
While there are more than 15,000 units under construction or in lease-up in Plano, Frisco, Allen, McKinney, and Richardson, many suburban cities have begun to restrict multifamily garden, or low density, development. They are promoting high-density multifamily development which is often unattractive to families with children. Single family availability is at historic lows and median single family pricing has grown at a pace never seen in North Dallas. Further, loan underwriting for first-time homebuyers has become more onerous and many do not have the required down payment.
The North Dallas markets have attracted significant corporate relocations and consolidations including State Farm, JP Morgan Chase, Liberty Mutual, and Toyota, among many others, that are contemplating similar moves. Legacy West, CityLine and the southern portion of Frisco have exploded with new office, retail, restaurant, and recreational development. An expected 34,000 new jobs will populate the new corporate campuses.
All this to say that while our pipeline is very full, yet still not as full as the mid-1980s, population and job growth will comfortably fill most, if not all, of the units in the pipeline. Also, given the less than required single family pipeline, during the next 2+ years most multifamily properties will be at or near their optimal occupancy rates with the ability to increase rental rates.
In addition, the headwinds for further significant multifamily development in the northern suburbs will be impaired by the lack of zoned multifamily land, continued increasing construction costs, reticence of lenders to provide required financing, and the limited pool of equity investors for new development.
From an investment perspective, the northern Dallas suburban markets remain one of the most attractive areas in DFW. Irrespective of whether the property is deemed core, core plus, or value-add, investors are keenly focused on these markets. These areas boast job growth, schools, a more affluent resident demographic, accessibility, single family housing stock that is often more expensive than many residents can afford, and the list goes on.
Some have suggested that we are in the later innings of this cycle. I am not sure exactly where we stand, yet I can clearly say that we are in the early innings in the northern Dallas markets with plenty of innings left to play.
Jeff Price is a managing director within JLL’s Capital Markets group.
