Take a Peek at What’s Happening in the Third Quarter of 2020 Multifamily Market Report
How’s the Market?
- Prior to 2020, cranes seemed to be on each corner you turned in DFW, with another multifamily real estate units manifesting. With the emergence of the pandemic, the cranes kept working, but the builders were not sure if there would be any settlers for their projects.
- But, a 2021 rebound is in the works with DFW’s dynamic market, population growth, comparative job growth and low taxes.
- When new projects bounce back in 2021, structures will be different according to Tom Bakewell, president of development and co-founder of Streetlights residential.
- Everyone should anticipate a filtered, touch-less, sanitized lifestyle.
- Apartment begins in DFW in the second half of 2020 and in 2021 will significantly lessen from the accelerated building pace of the previous years.
- That will give freedom for occupancies to tighten back up and rent growth to come back into the market, probably in the last quarter of next year.
- MIllennials will be visible in the urban community for the entertainment and dining scene as soon as the pandemic settles.
- The proximity to several jobs that begin to fill a lot of the newly constructed office structures in uptown and surrounding urban communities will also welcome millennials back.
- A demand for healthier building is anticipated for lasting change in terms of touch-less entry doors and elevators, efficient water and air filtration, and changes in expectation for sanitizing and cleaning common areas.
- Since the emergence of the pandemic, all the markets have witnessed some occupancy and rent dips.
- Contractors and builders also foresee a significant decrease in construction costs, which never manifested, making new enhancement even more challenging to start with.
- The increase in development costs will result in lower supply, so the new projects can entice capital should hit success in a more robust leasing market in the coming years.
**Dallas Fort Worth (DFW) multifamily Occupancy Rents and effective rental rates as of November 19, 2020
|YOC||Effective Rental Rate||T-12||YoY Change|
- As of October 28th, the unemployment rate in DFW is pegged at 7.5%.
- This is an improvement of 6.3% as compared to last month’s data.
- In terms of the year-over-year (YoY), the unemployment rate was pegged at 3.2%.
- We have listed the figures as of October 3rd 2020, for weekly unemployment claims in Texas since the first reported U.S case of COVID-19.
- Total weekly claims before adjustment is 42,338 claims
- Unadjusted month moving average is 45,375 claims
- Here are the figures for weekly unemployment claims in the state of Texas since the first reported U.S case of COVID-19 as of November 7, 2020.
- Total weekly claims before adjustment is 32,422 claims.
- The unadjusted monthly moving average is 37,632, claims.
- Rents in Dallas has lessened to 0.5% month-over-month and are down by about 2.6% since the emergence of the pandemic in March of this year, as per analysis by Apartment List.
- YoY growth from the end of third quarter is presently pegged at -2.6%, compared to 1.3% at this time last year.
- Igor Popov, Chief Economist for Apartment List stated that median rents in Dallas presently stand at $981 for a one-bedroom apartment and $1,176 for a two-bedroom apartment.
- As the COVID-19 pandemic as well as its economic downturn continues to overwhelm renters all over the United States, the monthly rent estimates manifests the protracted nationwide slowdown and uneven recovery, Popov added.
- The rest of the DFW is foreseeing varying rent trends despite the fact that rent prices have decreased in Dallas over the past year.
- Of the biggest ten (10) cities that Apartment List had data for in DFW, half of them had realized increases while the other half is gradually decreasing.
- Arlington has realized the fastest growth in the metro, with a YoY increase in 6.2%. The median two-bedroom is pegged at $1238, while that of one-bedroom go for $1015. What is likely striking this trend is the fact that Arlington has witnessed a lot of trade in properties over the last few years. Now, the new owners repositioned the properties.
- Plano has the most lucrative and pricey rents of the biggest cities in the Dallas Metro, with a 2-bedroom average of $1513.
- Rents decreased in Plano for about 0.3% over the past month and 1.7% over the past year. Plano has the biggest units in the nation which is an added factor, so to speak.
- Fort Worth has the least expensive rents in the metro, with a 2-bedroom average of $1125. However, rents decreased by 0.2% over the past month and 0.8% over the past year.
- The average rent for a 2-bedroom apartment in several cities in North Texas as well as the Yoy percentage rent change is listed below:
|Increase in Rent||Decrease in Rent|
|Mc Kinney $1360 and up -2%||Plano, $1510 and down by 1.7%|
|Mesquite $1260 and up -3%||Carrollton $1340 and down by 2%|
|Grand Prairie $1215 and up by -3%||Irving $1310 and down by -2%|
|Arlington $1240 and up by 6.2%||Dallas, $1180 down by 2.6%|
|Garland $1220 and up by -1%||Fort Worth @1120 and down by 0.8%|
Renters vs. Homeowners
- Based on new analysis by apartment search website RENTCafe’ in the DFW community, twelve (12) of the fourteen (14) cities with more than 100,000 residents had their share of renters increase in the last decade, with Plano and Frisco leading all over the nation.
- Homeowners recorded significant gains in just a city, Mesquite.
- Four of the top ten (10) cities with huge leaps in renter share are in Texas, and three of the four are located in North Texas.
- Frisco is the only city in the United States that more than doubled its renter growth population, pegged at 58,000 last yr. The share of renters in this city significantly increased by 59% in 10 years.
- Plano has the same growth, with the total growth percentage of renters pegged at 41% over the last decade. On the contrary, the share of homeowners decreased by 16%, the most significant drop among the cities in the DFW area.
- One reason for the increasing number of lessees in fast-growing communities like DFW is a shortage of affordable housing, as stated by David Howard, executive director of the National Rental Home Council.
- “People are growing more and more comfortable with a concept of renting a home for an array of reasons.” Howard said in an interview with the Dallas Business Journal. “What really comes down to is there is a supply issue in this country when it comes to housing”.
- Further, the pandemic is changing the outlook of people on renting vs. owning a home that is according to co-founder and CEO of CONTI Organization, Carlos Vaz, a Dallas -based multifamily property owner-operator.
- After the crisis and economic downturn we experienced in 2008, individuals began thinking about renting as an effective option. Maybe they should rent instead of purchasing a house,” Vaz stated in an interview with the Business Journal.
- “After 2020, people are going to think about renting as a permanent housing solution. They are not even going to think of buying a house anymore. It is a different dynamic”.
- “A lot of people are now having to tap into their savings,” vaz added. “They have lost their jobs, or their business is not afloat any longer. Or their businesses have incurred a significant amount of debt. That is why a lot of people are going to think twice about buying a house as an investment or even as a residence.”
- In the analysis of RENTCafe’, in terms of a 10-year growth, renting gained ground across the board in North Texas, except for Mesquite.
- Renters in Mesquite lost about 10,000 residents, which translates their share by 2%. The percentage of homeowners increased by 12%, the only “up” among the DFW cities.
- With 55% of its population renting, Dallas made another step in terms of being a renters’ city. The region’s largest city added far more renters at 101,000 as compared to owners at 45,000 over the last ten (10) years.
- Besides Dallas, there are three (3) more renter-majority cities in the DFW area, namely Irving, Lewisville, and Denton.
What is in store for us?
- The DFW market has remained as one of the most dynamic markets all over the United States
- While the pandemic has slowed things down, DFW is emerging with renewed strength because the factors driving its growth have not changed.
- There is also job growth, population growth, and a business-friendly climate all over DFW.
Condition of the Market
Construction of apartments in the Dallas Fort Worth is increasing which brings us to raise issues of overbuilding amidst pandemic. We have to thank the jobs market for rebounding immensely. Owners of apartments in DFW are faring better as compared to owners in other parts of the country in the Covid-19 market, based on studies.
But, there are still a lot of problems to be faced and one of the major things is the job market. Although it started strong at the onset, DFW lost about 282,000 jobs since February up to date.
Some of the jobs were reactivated and resurrected but there is still a significant amount of deficit approximately at 152,000 jobs.
DFW has lost about 4 percent of its jobs, but that very same percentage of downsizing is one of the better outcomes throughout the country.
To add, the type of jobs makes a big difference. DFW has done a bit better as compared to other markets at hanging on to higher-paying jobs. Significant losses come from the retail and hospitality industries.
The retention of the renter is up for 67 percent of individuals who had leases expire in the second quarter of this year, ended up in the same position.
Lease-up is tolling for multifamily complex projects that are trying to generate their initial client base. That is why rent growth is slow.
Also, based on studies, it is expected that occupancy in DFW is to drop for about 100 basis points in the last quarter with a baseline of about 93.7% up to either the first or second quarter of 2021.
On the other hand, rents have stabilized as of the moment. It is also forecasted that there will be at least two (2) percent loss with no real growth until the first quarter of 2022.
Amidst the COVID-19 pandemic, and the looming unemployment issue, rent payments during the previous months have been recorded to be just about a percent below normal, although the miss of August may land about three (3) percent.
How is the rental industry doing?
Based on the report, rental rates are in steady-state, but concessions are increasing for apartments located in North Texas.
At about 22,970 apartment units and 82 apartment complexes have opened in the last twelve (12) months, bringing the entire supply across DFW to more than 760,0000 units and 3206 complexes.
To date, another 99 complexes with almost 30,000 units are on its way.
Concessions like rent-free periods and move-in specials, which were not common about a year ago until the first quarter of this year, are increasing as the supply is greater than the demand since it is impacted by looming economic downturns and unemployment since the start of the pandemic brought about by the COVID-19 virus.
38 percent of the entire units available on the market, across apartment classes, are offering concessions.
However, in classes BCS, you will less likely see rent reductions and move in specials. That specific analysis has showcased a decrease of about 6.5% across apartment classes in Dallas Fort Worth. Obviously, Class A took the biggest blow with a whopping 8.1 percent reduction in rent. In classes B, C, and D units, reduction fell between four (4) to five (5) %.
In terms of renter retention, and because of the difficult economy and layoffs, a lot of property managers and landlords are taking steps to hang on to the lessees they have at this moment.
Before, the average increase in rent on renewal leases was in the low 4-5 percent. But now, some landlords are offering a reduction in rent to lessees who will stay in place. It is not a significant reduction of about 1-2 percent. In this time of the pandemic, if you have got a household that has been an excellent tenant and still has a job and has the capability to pay rent, you are going to do what you need to do to make them stay but at the same time, generate some revenues.
The unemployment rate in the DFW-Arlington as of September is at 7.5% as compared to 8.2% in the second quarter.
However, the YoY or year-over-year unemployment rate landed at 3.6%.
Before the end of the third quarter, we also report the numbers for weekly unemployment claims in the state of Texas since the first reported US case of COVID-19; total claims before the adjustment is around 61,490 while the unadjusted four-week moving average is around 83,042.
On the other hand, as of early September of this year, the total clams landed at 56,759 while the unadjusted four-week moving average is around 55,654.
Report on the Construction Industry
The number of apartments hitting the market for the last two (2) years is one of the main challenges that the state of Texas is facing.
A total of 44,000 units is the total ongoing construction in the DFW area, the most aggressive figure anywhere all over the United States.
A total of 4,671 apartments are under construction in Frisco, 3,387 are in the works along Allen/McKinney area, while 3,536 are under construction in Dallas.
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