Thursday, May 07, 2009

Analysts: D-FW apartment market will be one of the last to turn around

Because of widespread construction, Dallas-Fort Worth will be one of the last apartment markets to see a turnaround, industry forecasters say.

Almost 23,000 apartments are being built in North Texas – more than in any other U.S. metropolitan area.

“We won’t see our peak deliveries of new units until the end of this year,” apartment analyst Greg Willett said. “D-FW will be the last market in the country to wrap up their new supply.
“We think that the bottom of the market here is later than in the other metro areas across the state – at best in early 2010,” Willett said at a Thursday morning apartment market forecast seminar sponsored by Marcus & Millichap Real Estate Investment Services.

Expect apartment vacancy rates in the D-FW area to increase by about 3 percentage points over the next year from their current almost 10 percent vacancy, said Willett, who is vice president of research for Carrollton-based M/PF YieldStar Inc. And rents, which have been flat, should fall by about 3 percent.

“When you get to the bottom, D-FW will probably sit on the bottom for several quarters,” he predicted. “You can't really get any momentum going until you get though the apartment completions, which go all the way through 2010.”

Until last year, the apartment market in Texas and across the country had been one of the best sectors in the real estate investment market.

And because of the sharp drop in home sales, apartment landlords were optimistic that their business would remain good.

“You would expect people would be coming to apartments and lining up to rent units and allowing us to dodge this downturn,” said Hessam Nadji, Marcus & Millichap’s national research director. “But in the fourth quarter, the vacancy went up pretty sharply.

“The issue is job loss,” he said. “Until jobs come back, we are not going to see this reverse.”
In bad economic times, many young apartment renters double up or move back in with families, which increases vacancy rates.

During the last year, the Dallas-Fort Worth area has seen almost a 7,000-unit decline in occupied apartment units – the biggest such decrease in more than a decade.

“Our expectation is that the vacancies will continue to rise in 2009,” Nadji said. “Nationwide, rents will be down 4 to 5 percent this year and another 3 percent down next year.

“The next two years will definitely be a challenge for us.”

The decline in apartment leasing and rents and the lending credit crunch have sharply reduced the number of apartment sales this year, brokers say.

“Nothing is really happening – sales are anemic,” said Will Balthrope, who heads Marcus & Millichap’s Dallas-based apartment brokerage team. “Hopefully this time next year, things will be happening.”
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By STEVE BROWN / The Dallas Morning News