Friday, January 09, 2009

Dallas-Fort Worth Apartment Demand Plummets

By Steve Brown, The Dallas Morning News
Jan. 6--The Dallas-Fort Worth apartment market suffered a huge hit in the final months of 2008.

Apartment occupancy in the area fell by almost 6,000 units -- more than erasing the gains earlier in the year, analyst M/PF YieldStar reported Monday.

The dramatic decline in net apartment leasing also indicates that the local job market is not as robust as many had thought, analysts say.

"This was one of the worst quarterly demand performances ever recorded in Dallas-Fort Worth," said Greg Willett, M/PF's vice president of research. "For move-outs to reach this magnitude, job loss has to be pretty substantial.

"It looks likely that there will be huge revisions to the current employment statistics that say D-FW is adding jobs at a reasonably healthy pace."

The apartment business was one of the few sectors in the local real estate market that continued to boom in 2008 despite the growing national recession and the credit crunch.

Developers continued to start projects, and through the first nine months of the year, net apartment leasing in the D-FW area totaled 300 units.

Then came the fourth quarter.

For all of 2008, apartment occupancy fell by 5,580 units -- the first annual decline in North Texas in more than a decade, according to M/PF.

When the economy gets bad, renters often double up or move in with relatives to cut expenses.

Renters also leave town to seek employment elsewhere.

"The numbers are negative in every neighborhood," Willett said. "The largest number of move-outs were in Far North Dallas, North Arlington, West Plano and Las Colinas.

"It's everything from top of the market to low-end product."

The year-end decline pushed overall apartment vacancy in North Texas to 8.6 percent.

That's almost three percentage points higher than a year earlier.

Overall apartment rents (including incentives) dropped 0.3 percent in 2008, according to M/PF.

"Any pricing power that property owners had previously is clearly gone now," Willett said.

The slide in the rental market couldn't come at a worse time for builders.

More than 21,000 additional rental units are in the development pipeline.

Almost 4,200 apartments opened their doors in the fourth quarter alone.

But some of the construction has been offset by teardowns of older units.

"That volume of new supply would be too much even during a period of substantial job growth, and it's way over the top given that Dallas-Fort Worth will be vulnerable to significant employment downsizing in 2009," Willett said. "Things definitely will get worse."

-The Dallas Morning News