February 2016 Home Ownership

Last year I wrote that 2015 will be remembered as one of the best performing annual periods in the Dallas-Ft. Worth market is recent memory. Based on preliminary numbers, 2016, in contrast, will go down as a turning point. For the first time in a long time we are seeing some submarkets struggle not just for occupancy but for rent increases as well.

The 4th quarter saw the Greater Dallas area add 1,077 net rented units though the Ft. Worth side had negative absorption of almost 300 units. It took strong incentives, however, to get those extra units leased as average rents fell 1 .2% over the last 3 months in the greater Dallas side of the metroplex. High new construction activity led areas like far North Dallas, McKinney, Frisco, Plano and Uptown to experience the largest decline in average rents in the final quarter-up to 3%. Clearly the newer units aren’t fetching the prices that were anticipated just a few months ago.

The mid-cities submarkets are also taking a hit in both occupancy and rents. While the rent decreases weren’t so dramatic over the 4th quarter, all of the mid-cities submarkets had a decline in net rented units.

The better news is that overall effective rent is up 5.5% per unit and 5.3% per square foot from a year ago on average in the Greater Dallas sub­markets. All of the submarkets experienced a net increase in rents from this time last year.

2017 is not starting out like it will match those numbers, however. More than 25,000 new units are slated to come online in 2017 and in 2016 the DFW market managed to only absorb about 15,000 units. Consequently, unless absorption rebounds, in 2017, average occupancy could drop more than a percentage point. Could the greater Dallas area see average occupancy dip down to the 90% range in 2017?

Overall the economy is strong in the region but it is just becoming harder to create even more new jobs with unemployment so low. However, new homes remain scarce and unaffordable for many so competition from that sector is still a ways out.

In the last few years talk has mostly been about optimizing and maximizing rent increases. The times they are a changing’ however, and marketing will become the hot buzzword in 2017. Owners and Managers will have to put on their thinking caps and get creative in marketing as the competition for new renters will get hot in the next year.

ALN surveys apartment conditions monthly in over 100 markets nationwide. For copies of this article and other publications and data visit our website at https://alndata.com. You can read the full Rooflines magazine at the Apartment Association of Greater Dallas’ website, at www.aagdallas.com.