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Multifamily Research

Market Report Fourth Quarter 2018

Dallas/Fort Worth Metro Area

Housing Affordability Concerns Help

Drive Metroplex Apartment Demand Multifamily 2018 Forecast

New development spurred by strong economy, 25,900 units Construction:

demographic trends. Job gains in the Dallas/Fort Worth will be completed In 2018, deliveries rise from the
Metroplex continue to rise at a strong pace with wage growth 24,600 completed last year.
strengthening this year. These trends are propelling a steady rise Frisco and Intown Dallas will
in the number of households created, of which a large share are each receive more than 2,000
moving into apartments. In the first three quarters of 2018, the new units this year.
positive net absorption of nearly 22,300 units was more than
any 12-month span in over a decade. Healthy absorption trends 0 basis point Vacancy:
are anticipated to continue as the Metroplex’s economic outlook The positive absorption of nearly
change in vacancy
remains bright and developers continue to respond with a deep 24,500 units this year keeps
development pipeline throughout the market. vacancy flat. The rate increased in
each of the past two years.
Dallas/Fort Worth single-family housing demand slips.
Housing affordability concerns are rising alongside appreciating
home values, increasing interest rates and property taxes across 3.2% increase Rents:
the Metroplex. Home sales activity has slipped in the market The average effective rent rises
in effective rents
as a result, and of those sales, the majority have occurred for to $1,111 per month this year.
properties priced over $250,000, with the median home price Overall growth remains strong,
reaching approximately $260,000 in the third quarter. The monthly but is highly dependent on sub-
mortgage payment for a median-priced home rose above $2,000 market and property class.
per month during the quarter, or $900 above the average rent for
an apartment in the market. This spread has increased more than
$400 over the past five years as home prices have appreciated
at a rapid pace compared with apartment rents, making it more
difficult for potential buyers to transition into homeownership. Investment Trends
Local Apartment Yield Trends • Rising interest rates and tempered rent growth have cautioned
some investors and encouraged a more conservative approach
Apartment Cap Rate 10-Year Treasury Rate
to opportunities in the Metroplex. More discernment is emerging
based on a property’s quality and location, and buyers are
adjusting investment criteria as they consider the intricacies of
9% today’s market environment.
• Cap rates for Class C properties have compressed and first-

year returns average on par with those for Class B complexes.
3% Some investors with long-term hold strategies are using the
opportunity to trade into a higher-quality asset now offering a
0% similar initial yield.
8* 00 02 04 06 08 10 12 14 16 18*
• Sales of properties priced between $1 million and $10 million
made up 43 percent of sales over the past 12 months. The
Sales Trends average first-year returns for these properties was 6.1 percent.
Sales Price Growth
rice per Unit (000s)

* Cap rate trailing 12-month average through 3Q; Treasury rate as 16%
$125 of Sept. 28
Sources: CoStar Group, Inc.; Real Capital Analytics
Year-over-Year G

$100 12%

$75 8%
Dallas/Fort Worth
Employment Trends EMPLOYMENT:
Local Apartment Yield Trends
Metro United States 3.3%
Apartment Cap Rate
increase 10-Year
in total Treasury Rate
employment Y-O-Y
Year-over-Year Change

• Roughly
12% 117,600 positions were added in the Metroplex
4.5% over the past 12 months. Job additions were heavily con-
centrated in professional and business services, as well
as leisure and hospitality.

1.5% • The market’s unemployment rate remained tight during
the third quarter at 3.5 percent, approximately 20 basis
0% points below the national rate.
14 15 16 17 18* 00 02 04 06 08 10 12 14 16 18*

Completions and Absorption CONSTRUCTION:

Sales Trends
Completions Absorption 25,500
Salesunits completed
Price Growth

Average Price per Unit (000s)

$125 16%
32 • Completions ticked up over the past 12 months as healthy

Year-over-Year Growth
demand continues to encourage apartment
$100 12% developers.
Units (000s)

Quarterly completions have averaged more than 6,000
16 units since mid 2016.
$75 8%

• $50
More than 50,000 apartments are underway
4% across the
Metroplex with completion dates scheduled through
0 early 2021.
$25 0%
14 15 16 17 18* 14 15 16 17 18*

Vacancy Rate Trends VACANCY:

Metro United States 30 basis point decrease in vacancy Y-O-Y

• Quarterly net absorption reached over 8,000 units for the
Vacancy Rate

second time this year, pushing down the vacancy rate on

6% a year-over-year basis for the first time since mid 2016.
The rate dipped to 4.9 percent in the third quarter.
• Vacancy remained tightest among the market’s Class C
properties for a second straight yearlong period. The rate
fell 50 basis points year over year to 4.1 percent.
14 15 16 17 18*

Rent Trends RENTS:

Monthly Rent Y-O-Y Rent Change 3.1% increase in effective rents Y-O-Y
$1,200 8% • Strong demand has encouraged healthy rent gains and
Year-over-Year Change
Monthly Effective Rent

the average effective rent advanced to $1,117 per month

$1,100 6% in the third quarter.
$1,000 4% • Tightening vacancy among the Metroplex’s Class C
properties has led to strong rent appreciation over the
$900 2% past few years. The average increased 3.6 percent over
the past 12 months to $870 per month.
$800 0%
14 15 16 17 18*

* Forecast
Multifamily Research | Market Report



Metro $68,954 Renting is $916 Per Month Lower 29,520 1H 2018

U.S. Median $61,789 Average Effective Rent vs. Mortgage Payment* g 18% Compared with 1H


Metro $259,585 286,000 or 2.1% Annual Growth 35,561 1H 2018

Compared with 1H
U.S. Median $260,016 U.S. 1.2% Annual Growth g 23% 2014-2017

*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2017-2022 Annualized Rate

Lowest Vacancy Rates 3Q18 Bright Economic Outlook and Healthy

Demographic Trends Lure Investors
Submarket Employment
Basis PointTrends
Effective Y-O-Y %
• Sales dippedLocalslightly
Apartment Yield
over the pastTrends
12 months, but
Rate Rents Change
Metro United States increased demand
Apartment Capfor available
Rate listings
10-Year pushed
Treasury up the
6.0% average price 10 percent to over $100,000 per door
Year-over-Year Change

for the
12%first time.
Ellis County 4.5% 2.3% -10 $1,011 2.5%

• Heightened
9% competition continued to compress cap
Hunt County 3.0% 2.6% -80 $794 6.9% rates, evidenced by the 50-basis-point decline during

the past
6% year to an average of 5.9 percent.
Southwest Dallas 1.5% 3.0% -230 $876 8.0%
Outlook:3%Increased interest rates could begin to place
Burleson/Johnson County
0% 3.1% 10 $976 6.3% upward pressure on cap rates in the near future and
widen pricing
0% expectations between buyers and sellers.
14 15 16 17 18* 00 02 04 06 08 10 12 14 16 18*
Northwest Dallas 3.2% -120 $928 5.1%

Southern Dallas County 3.7% -180 $1,013 4.4%

Completions and Absorption Sales Trends
Carrollton/Farmers Branch 3.8% -20
Completions $1,115
Absorption 1.9% Sales Price Growth
Average Price per Unit (000s)

Denton 3.8% -40 $1,042 4.1% $125 16%

Year-over-Year Growth

$100 12%
Units (000s)

South Irving 3.9% -20 $933 3.8%


Garland 3.9% -10 $988 4.1% $75 8%


Overall Metro 8 4.9% -30 $1,117 3.1% $50 4%

0 $25 0%
14 15 16 17 18* 14 15 16 17 18*

* Trailing 12 months through 3Q18

Vacancy Rate Trends Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics

Metro United States


Multifamily Research | Market Report

3Q18 Apartment Acquisitions By DAVID G. SHILLINGTON, President,

By Buyer Type Marcus & Millichap Capital Corporation
Other, 1% Cross-Border, 9% • Fed pushes overnight lending rate higher, cites economic
strength in case for additional increases. The Federal Reserve
Equity Fund increased the federal funds rate by 25 basis points in late September,
& Institutions, 23% lifting the Fed funds rate to 2 percent. Remarks from the Fed highlight
a robust economy, spurred by accommodative fiscal stimulus,
while inflation remains broadly in line with expectations. Provided
Private, 63%
Listed/REITs, 4% the economy continues to perform as expected, the Fed is likely to
increase rates in December, as well as up to three times next year.
• Benchmark interest rates, lending costs push higher post-

Fed meeting. After the Federal Reserve lifted overnight rates and
Apartment Mortgage Originations maintained a positive economic outlook, long-term interest rates have
By Lender
pushed higher. The 10-Year Treasury yield has quickly traded toward
100% the 3.25 percent range, which is prompting lenders to pass on the
Percent of Dollar Volume

increased cost to borrowers. However, fierce competition for loans is

75% Gov't Agency also leading to some cost absorption among lenders. While greater
Reg'l/Local Bank
borrowing costs may prompt buyers to seek higher cap rates, strong
50% economic performance should enable rent growth above inflation. As
Nat'l Bank/Int'l Bank
CMBS a result, sellers remain committed to higher asking prices, which is
25% Pvt/Other
widening an expectation gap as property performance and demand
trends remain positive.
14 15 16 17 18* • The capital markets environment continues to be highly
competitive. Government agencies remain the largest source of
* Through 2Q funds, commanding slightly over 50 percent market share. National
Include sales $2.5 million and greater
Sources: CoStar Group, Inc.; Real Capital Analytics
and regional banks control approximately a quarter of the market.
Atlanta Office: Columbus Office:
Pricing resides in the high-4 percent realm with maximum leverage of
75 percent. Portfolio lenders will typically require loan-to-value ratios
National Michael FasanoGroup
Multi Housing First Vice President/Regional Manager Michael Glass First Vice President/District Manager
1100 Abernathy Road N.E., Bldg. 500, Suite 600 closerRoad,
5005 Rockside to 70Suite
1100 with interest rates in the low-5 percent range.
Atlanta, GA 30328
The passage
Independence, OH 44131of tax reform and rising fiscal stimulus will keep the U.S.
(678) 808-2700 | (216) 264-2000
growing, underpinning strong rental demand and supporting
John Sebree a national apartment vacancy rate of 4.6 percent at the end of 2018.
First Vice President, National Director | National Multi Housing Group
Austin Office:
Tel: (312) 327-5417 Dallas Office:
Craig Swanson Vice President/Regional Manager
Prepared and 9600 North
edited byMopac Expressway, Suite 300 Tim Speck First Vice President/District Manager
Austin, TX 78759 5001 Spring Valley Road, Suite 100W
Jessica Hill (512) 338-7800 | Dallas, TX 75244
Market Analyst | Research Services (972) 755-5200 |
Baltimore Office:
For information on national apartment trends, contact:
Fort Worth Office:
John Chang
Matthew Drane Regional Manager
Senior Vice President,
100 E. PrattNational Director
St., Suite 2114 | Research Services
Tel: (602) 707-9700 Kyle Palmer Vice President/Regional Manager
Baltimore, MD 21202 300 Throckmorton Street, Suite 1500
Tel: (202) 536-3700 | (817) 932-6100 |
Boston Office:
Price: $250 Denver Office:
Tim Thompson Regional Manager
© Marcus &100 High Street,
Millichap 2018 |Suite 1025 Skyler Cooper Regional Manager
Boston, MA 02110 1225 17th Street, Suite 1800
(617) 896-7200 | Denver, CO 80202
(303) 328-2000 |
Charleston Office:
The information containedYelm
in this Regional
report was obtained from sources deemed Detroit
Manager to be reliable.
Office:Every effort was made to obtain accurate and complete information; however, no
Meeting or guarantee,
Street, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment
Suite 450
growth is calculated based
Charleston, SCon the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intend-
ed to be a forecast of future events and this is not a guaranty regarding a futureSteven Chaben
event. This Senior Vice
is not intended President/Regional
to provide Manager advice and should not be considered
specific investment
(843) 952-2222 | Two Towne Square, Suite 450
as investment advice.
Southfield, MI 48076
Sources: Marcus Office:
& Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; National Association of Realtors; Moody’s Analytics; Real Capital
(248) 415-2600 |
Analytics; RealPage, Inc.; TWR/Dodge Pipeline; U.S. Census Bureau
Benjamin Yelm Regional Manager
201 South Tryon Street, Suite 1220
Charlotte, NC 28202
(704) 831-4600 |
Fort Lauderdale Office: