Wednesday, August 09, 2017

Has D-FW apartment building peaked? Top developer thinks so


Seems like every year someone predicts a slowdown in North Texas apartment building.
And every year, the number of rental units on the way in the Dallas-Fort Worth area grows.
But when one of the country's biggest apartment builders says he thinks the construction cycle in D-FW has topped out, it pays to listen.
At midyear, more than 50,000 apartments were being built in the area — one of the largest numbers of new units on the way in any market in the country.
But rising construction costs and a slowdown in rent growth will cause apartment builders to pull back a bit, says Steve Bancroft, senior managing director of Dallas-based Trammell Crow Residential.
"Supply has peaked," Bancroft told members of the Stemmons Corridor Business Association at a meeting this week. "There is a little bit more supply than demand today."
Bancroft said that while the outlook for rentals in North Texas and across the U.S. is strong, construction is dipping.
"We are just taking our foot off the gas — we are not slamming on the brakes," he said. "There are some warning signs out there that make you want to ease up a little bit."
This year, almost 30,000 new apartments will open their doors in the D-FW area.
While vacancy levels have remained low, landlords are having a harder time raising rents in neighborhoods with lots of new apartments.
"In Class A apartments, that rent growth has trended down since 2015 to below 2 percent," Bancroft said. "For a developer, that's not a good thing."

Still growing

Nationwide apartment construction is also pulling back.
"Right now, we are at a cyclical high of about 350,000 starts for the year," Bancroft said. "That should tail off to around 250,000."
He said that North Texas' strong job and population growth ensure continued demand for rental housing. "We add 90,000 to 100,000 people a year in Dallas," Bancroft said. "It's like adding a Frisco every 18 months."
Bancroft estimates that the D-FW area still has a shortage of about 22,000 rental units based on demand.
"There is not enough housing today for everyone in the market," he said. "It's still hard to buy a home, and those home prices are going up."
Rapid home price increases in the area have kept many potential buyers in apartments.
"The annual payment on a house is going up 10 to 12 percent a year," Bancroft said. "That's a lot more than rent growth."

Counting on millennials

Apartment developers are also counting on millennials to keep renting apartments for years to come.
"One-third of everybody between the ages of 20 to 34 rent apartments," Bancroft said. "Over the next 23 years, this continues to grow."
Steve Brown/Dallas Morning News