Tuesday, July 19, 2016

DFW reaches 'vulnerable stage' with 50,000 apartments underway

Dallas-Fort Worth has reached an all-time high for apartment construction with more than 50,000 units underway, which is the most product under construction in the United States by a large margin.

"It's been a long time since we've had 50,000 apartments under construction," Greg Willett, the chief economist for RealPage Inc., told theDallas Business Journal. "Technically, we hit that number in the mid-1980s, but that was a long time ago."

North Texas' new high mark for apartment construction comes at a time when Willett and other MPF Research analysts say the outlook for the apartment industry is favorable, but the amount of construction has the region reaching yet another stage. That's the vulnerable stage, he told me.

"From our perspective, the outlook is favorable, but there is a danger point that's more likely national or international and if demand slows there's a pretty sizable correction coming," Willett told me. "You reach a vulnerable stage if there's this much construction."

Currently, the demand for apartments in Dallas-Fort Worth is keeping pace with the supply being delivered by developers, he said. Annually, the region absorbs 15,000 to 20,000 apartments. This year, developers are on track to deliver nearly 30,000 apartments in the next 12 months.

"Even with all the new construction, we are absorbing them as fast as it comes online," he told me. "Occupancy is at an all-time high and we have product to satisfy that demand that is clearly on its way."

North Texas apartment occupancy sits at 95.5 percent by mid-2016, according to the latest report by Carrollton-based MPF Research, which is an affiliate of RealPage. The rental rates are also continuing to grow 6.1 percent year-over-year.

Willett said he expects rents to continue to grow this year by 4 percent per year, which is still stronger than the long-term average, he said. The monthly average rent for a new resident is $1,282.

In the region, the hot spots for apartment development continue to be in Uptown and Frisco, he said, but there's virtually activity throughout North Texas.

"You have about 6,900 units under construction in Uptown and downtown and Frisco has about 5,500 units on the way," he told me. "These are huge blocks of construction, but that's only 11,000 of the 50,000 we have under construction. It's in every neighborhood in Dallas-Fort Worth and that's pretty meaningful."

Written by Candace Carlisle/Dallas Business Journal