Dallas-Fort Worth remains one of the most active markets in the United States, as fundamentals are solid and investors are taking notice of the high demand for multifamily housing options. In fact, for the year ending 2Q2017, North Texas has continued to remain extremely strong even though our new supply levels are among the highest since 2001. According to MPF Research, the current overall occupancy rate sits at 95.7 percent, reflecting occupancy rates as well as rental growth levels in the 20-year high region.
Sales activity in DFW has also improved significantly during the second quarter of 2017. In our office alone, we have closed hundreds of millions of dollars of transactions within just the last 60 days. On a recent portfolio of two value-add deals in exceptional locations, our team conducted approximately 100 tours, as the demand for value-add deals is insatiable.
It appears that prices are on an upward trajectory. We have seen many investors generate tremendous equity just within the past few years. In some submarkets, prices have doubled over the course of the last four years. One of the biggest challenges for today’s investor is that there is not enough product for sale at any point of time to satisfy the amount of equity that potential buyers are looking to place in the market. This has led to offers with very aggressive terms, many transactions being structured with “non-refundable earnest money” from the execution of the contract.
Noteworthy is the fact that many of Dallas’ and Fort Worth’s neighborhoods are improving with revitalization efforts by members of the community including areas such as Skillman at LBJ, Spring Valley at 75, Webb Chapel, and Woodhaven and the Las Vegas Trail areas in Fort Worth. The renovation of distressed buildings has already created a tangible boost to many neighborhoods long considered “class C”. This has led to an even more positive impact on the nation’s view of North Texas as a whole, and these revitalized neighborhoods have seen some of the largest rent increases over the last 18 months. The big question these efforts raise going forward is: How much in rental increases will the typical tenant be able to handle?
The high-rise market also continues to deliver more units. How long will it take to absorb the 12 high-rise properties currently under construction in just Intown Dallas? And, what level of concessions need to be offered to attract tenants? These are just two of the serious questions being asked regarding that market. The good news for these units is that in today’s market, it is extremely difficult to get construction loans even at 50 percent levels, which has curtailed development. As construction costs keep going up, many would-be developers are finding that new projects are not viable.
The gap between apartment rental rates and home ownership costs is ever-widening, which also bodes well for the multifamily market. Single-family home prices are up approximately 50 percent across the board over the last five years for existing homes, while new single-family construction starts are just half of what they were at the peak of the single-family housing boom. I am still optimistic that the multifamily market will continue performing well. Job growth for DFW over the next 12 months is forecast to be over 102,000 non-farm jobs per the latest report produced by RealPage Inc.’s MPF Research.
Let the good times roll!
Brian O’Boyle, Sr. is founder and vice chairman of the ARA, A Newmark Company Dallas office.
