Tuesday, July 01, 2008

Dallas-Fort Worth surges to No. 1 in apartment construction

Surging construction has made Dallas-Fort Worth the No. 1 apartment development market in the country.

But the boom in building comes at a time when net demand for rental units here is shrinking.

During the second quarter, developers broke ground on more than 6,100 D-FW area apartments. That pushes total area construction to more than 19,217 units – the highest total in more than five years, according to M/PF YieldStar.

“Dallas-Fort Worth looked like it would avoid overbuilding during the current cycle, but this big block of starts changes the big picture considerably,” Greg Willett, M/PF YieldStar’s vice president of research, said in a statement Tuesday.

“Given that developers are struggling to obtain capital for new building right now, it’s a little surprising to see construction activity jump so dramatically.”

The biggest concentrations of apartment starts during the second quarter were in West Plano and Frisco, Lewisville and North Fort Worth.

Even with all the construction, local apartment vacancies remained low at an average of about 7 percent.

But the decline in net leasing is troubling at a time when so much is being built.

During the second quarter, tenants moved out of a net 1,830 units in D-FW, according to M/PF YieldStar. The latest decrease came on top of a smaller dip in the first quarter, which brings the year-to-date tenant loss to 3,020.

Mr. Willett said that many of those renters are relocating to single-family homes, which are offered for lease by investors or homeowners who can’t sell their properties.

“The shadow market of single-family rentals is taking an unusually large share of total housing demand,” Mr. Willett said.

Regardless of the moveouts, rents continued to rise in the second quarter – up about 3 percent from a year earlier to an average of $752.