Commercial Real Estate

CRE Opinion: Full Speed Ahead for Metro Multifamily

Dallas-Fort Worth’s significant job growth has led to the absorption of the market’s new multifamily supply.

Brian O’Boyle of ARA Newmark.

There had been great speculation as to what would happen post-election in terms of the impact on the deals that were currently being offered for sale. We saw 10-year Treasury rates increase 70 basis points since the election and 100 basis points since the lows that we saw in mid-July 2016. As a result of the increased interest rates, many deals immediately fell out of contract or were re-traded. Things appear to have settled down for the short-term, however, nationwide multifamily sales in the first quarter of 2017 were off substantially from 1Q2016; the Dallas market followed the national trend and we saw sales down roughly 25 percent from the prior year.

In the past 12 months, Dallas ranked no. 5 in the country in closed multifamily transactions. The Dallas-Fort Worth metro continues to show up on more buyers’ radar screens—with more institutional and foreign capital streaming into our market. We eagerly anticipate more product coming to market and selling in the next four quarters.

The DCAD just released its 2017 values—two words: STICKER SHOCK! We’ve seen significant increases in assessed values and this will have a major impact on the sale of properties in that we’ll look for sellers to try to settle values early in the process for those contemplating a sale.

The good news is that the delta between owning and renting continues to widen. This bodes well for the multifamily market. Steady job growth across the country over the last several months has resulted in a dip in unemployment to its current 4.4 percent rate. This significant job growth has been the driving force to absorb all the new multifamily supply; this surprised most research experts in the market and, according to MPF 1Q2017 forecast to 1Q2018, the Dallas area is expected to deliver 26,000 new units and absorb 27,000! The Dallas-Fort Worth-Arlington metro added over 125,000 jobs from March 2016 to March 2017, the fastest-growing metro in all of Texas. This has led to strong leasing activity throughout all classes of product which resulted in occupancy rates and rent growth numbers experiencing a 20-year high.

We’ve seen the greatest rent growth in Class B and C product, as well as this same market realizing some of the highest returns on investments with prices doubling over the past three to four years.

High-rise building is also an active sector in our downtown areas. The verdict is still out as to the depth of this market—as of the end of the 1st quarter 2017, there were 11 high-rises under construction in the Intown Dallas area alone. Once these projects deliver, the rent concessions will most likely escalate. Stay tuned, as buyers are being more conservative in their underwriting, especially in submarkets that have experienced significant new construction delivery.

Overall the outlook is bright. Job formations are expected to remain strong and we anticipate 2017 to be another great year for the multifamily sector in terms of performance and sales activity.

Brian O’Boyle is vice chairman of ARA Newmark.