Thursday, November 06, 2008

Dallas-Fort Worth leads nation in apartment building

The Dallas-Fort Worth area now leads the country in apartment construction.

But building is likely to slow because of the crisis in debt and financial markets, apartment analysts meeting in Dallas said Wednesday.

More than 20,000 apartments are under development in the D-FW area, apartment consultant M/PF YieldStar said at its annual industry conference.

"The aggressive construction gives new meaning to the phrase 'It's bigger in Texas,' " said M/PF analyst Chandra Gajjar.

D-FW far outpaces second-place Houston, which has just over 16,000 rental units in the pipeline. Austin is third nationally, with 13,366.

Although North Texas has the strongest job growth in the country, apartment leasing has lagged this year.

"Demand for apartments in Dallas-Fort Worth is virtually flat – only 300 units [net leasing] through September," Ms. Gajjar said. "We have a strong economy that is providing ample support for housing demand. Where is it?"

Even with high building levels and weak demand so far in 2008, apartment occupancy rates will remain near current levels and rents here will rise through 2009, M/PF YieldStar predicts.

Overall, the apartment market in North Texas has less than a 7 percent vacancy rate.

Rents in the last year have inched up about 3 percent to a record $766 a month.

"Look for occupancies to come down just a tiny bit and rents to slow to a still decent 2 percent gain," Ms. Gajjar said.

"North Texas looks stable in the year ahead."

Of course, prices vary by district. Local rents are highest in the Uptown neighborhood, with an average of $1,325.

The Las Colinas area is second at $977.

Vacancy rates average less than 4 percent in East Plano, Allen, McKinney and North Dallas

Central Dallas, which has just seen a wave of building completions, has the highest vacancy rate at almost 12 percent.

"These are actually decade lows," Ms. Gajjar said.

Most development is taking place in Collin County, including West Plano, Allen and McKinney.

And while construction has fallen from recent highs, 2,239 units are still being built in central Dallas neighborhoods including Uptown and downtown.

To make way for construction, developers and investors have torn down almost 2,400 D-FW apartments this year, continuing a recent trend.

Developers are predicting a marked decline in apartment starts. Indeed, they're already seen a slowdown.

"We have four or five projects on the drawing board and one we might hope to start construction on in 2009, but we are not really optimistic," said Spencer Stuart Jr., senior managing director and Texas partner with Legacy Partners Residential Development.

Rick Perdue, director of acquisitions and development for builder Tonti Properties, said it's much more difficult to get an apartment project started today.

"There is a lack of financing and equity," Mr. Perdue said.

"It's not entirely a bad thing.

"A lot of times the lenders keep us from doing things we shouldn't do on the development side."