The resumption of job growth and significant reductions in new construction will support improvement in Dallas/Fort Worth apartment fundamentals through the end of the year. During the first half of 2010, employment in the metroplex increased by 32,600 jobs, a welcome turnaround after the loss of 124,000 positions during the recession. While the financial, information and trade, transportation and utilities sectors shed a combined 6,000 jobs in the first half, the government, manufacturing, and education and health services sectors led job creation, adding 34,000 positions. As a result, the unemployment rate in Dallas/Fort Worth dropped roughly 10 basis points to 8.2 percent in the first half and remains well below the national average.
Developers will deliver approximately 7,600 apartment units in 2010, down nearly 56 percent from 2009 and more closely aligned with new-supply trends in 2006 and 2007. Construction remains focused on the Dallas side of the Metroplex, with developers in Tarrant County completing 2,675 units during the past year. New supply in Fort Worth was isolated to the North Arlington, Northern Tarrant County and Northwest Fort Worth submarkets.
After rising 360 basis points through the recession, apartment vacancy in Dallas/Fort Worth declined 80 basis points to 8.9 percent in the first half of 2010. Year over year, however, vacancy rose 50 basis points. The resumption of job creation and a modest acceleration in household formation drove absorption of 9,250 units during the first 6 months of this year, marking the healthiest first-half demand figure this decade.The turnaround in vacancy can be attributed largely to stronger demand for Class A units, as rent reductions in recent years, along with increased concessions, allowed many renters to upgrade to higher-quality units. During the first half, Class A vacancy decreased 120 basis points to 8 percent, while Class B /C properties registered a 40 basis point drop to 9.8 percent. By year end, employment growth and reduced completions will fuel a 90 basis point decrease in the apartment vacancy rate to 8.8 percent.
Sales velocity remains on track to meet or exceed last year’s level. Most deals involve local, private buyers, though out-of-state activity has picked up. Already this year, the share of buyers from California has increased from the low point reached in 2009. Additionally, the Metroplex is commanding greater interest from East Coast and Canadian investors eager to enter the market ahead of more substantial improvements in fundamentals. While Texas-based investors continue to target discounted, distressed properties that offer turnaround opportunities and attractive REO deals, out-of-state investors are focusing on higher-quality, stabilized assets, which often sell for less than similar properties in other major metro areas.
Greater competition, particularly for stabilized, high-quality properties, will drive additional price increases by year end, especially as NOIs improve. Moreover, as buyers’ and sellers’ expectations continue to align, and as more investors scour the market for attractive deals, sales velocity is expected to strengthen in the second half.
— Tim Speck is the first vice president and regional manager of the Dallas office of Marcus & Millichap Real Estate Investment Services.