MARKET REPORT

MULTIFAMILY
Dallas/Fort Worth Metro Area Q4/19
Unwavering Job Creation Driving Rental Demand;
Opportunities for Entry-Level Buyers Prevalent Multifamily 2019 Outlook

Job growth highlights healthy fundamentals amid unprecedented wave CONSTRUCTION:

of supply. Sustained employment growth remains a key component to
Development will eclipse 24,000 units
the metro’s apartment performance as roughly 790,000 jobs have been
for the first time this millennium after
added since the start of 2012, compared with almost 150,000 units. Job
creation remains well dispersed amid strong hiring in the education and 24,800 UNITS
will be completed
falling just shy the previous two years.
Construction will be heavily focused on
health fields as well as a variety of Fortune 500 companies establishing
the northern suburbs.
operations in the Metroplex and bringing with them many high-paying
white-collar jobs. Dallas/Fort Worth will continue to lead the nation in
completions this year, adding nearly 25,000 units to inventory, notching
VACANCY:
a cyclical high. Despite the influx of supply, Dallas/Fort Worth’s vacancy
rate will substantially tighten this year, encouraging owners to further Metro vacancy is expected to decrease to
5.0 percent by year end amid exceptional
adjust rents to meet evolving market conditions.
50 BASIS POINT
decrease in vacancy
leasing activity. In 2018, the rate dropped
Fort Worth gaining traction with developers. Builders will remain active 10 basis points.
throughout many areas of the Metroplex this year, most notably the north-
ern suburbs including Frisco, Plano and Richardson. Here, developers
continue to play catch-up with demand, building additional units to
account for the influx of new households. Downtown Fort Worth will also
RENT:
witness strong supply growth, recording about 1,600 new apartments in Dallas/Fort Worth’s average effective
rent will rise to $1,189 per month as
2019 as the area attracts more white-collar jobs. Fort Worth’s urban core
remains in a revitalization stage and is becoming increasingly attractive 5.9% INCREASE growth hovers above the previous five-
for younger consumers seeking a live-work-play environment. Similar in effective rents year average.
rejuvenation efforts are taking place East Dallas, enticing apartment de-
velopers to capitalize on the submarket’s growing millennial population.

Investment Trends
• Tightening vacancy in western sections of Fort Worth piqued the
Local Apartment Yield Trends interest of many private buyers, enticing them to neighborhoods near
Apartment Cap Rate 10-Year Treasury Rate I-30, where a number of older complexes are located. Strong bidding
12% environments pushed cap rates in this area into the low-5 percent band.

• East Dallas remains a popular target for many private investors as its
9% proximity to major employers in the core and sustained revitalization
efforts provide value-add opportunities. With units selling for an aver-
Rate

6%
age of about $65,000 each during the past year, some entry-level buyers
were able to enter the market in an area where the average effective rent
3%
has risen 23 percent during the past five years.

0% • A variety of 250-plus unit complexes in Irving changed hands during

9* 01 03 05 07 09 11 13 15 17 19*
the past year as institutional groups scoured the area. Per unit prices
hovering under $100,000 and average cap rates reaching into the mid-6
percent range generated substantial interest outside of state lines. Buy-
Sales Trends ers from the East and West Coast were primary suitors.
Sales Price Growth
* Cap rate trailing 12-month average through 3Q; Treasury rate as of Sept. 30
er Unit (000s)

Sources: CoStar Group,

$120 Inc.; Real Capital Analytics 15%
Year-over-Y

$90 10%
 Employment Trends 3Q19 –Yield
Local Apartment 12-Month
Trends Period
Metro United States Apartment Cap Rate
EMPLOYMENT
10-Year Treasury Rate
6%
12%
3.3% increase in total employment Y-O-Y
Year-over-Year Change

3%
•
9% During the past year, Metroplex organizations hired 121,100 new
workers, exceeding the 91,000 employees in the previous year.

Rate
0%
6%
• The professional and business services sector posted the
-3% strongest gain, adding 26,800 workers to payrolls. Robust hiring
3%
was also evident in leisure and hospitality as well as financial
-6%
activities, collectively bringing in 35,200 employees over the past
0%
09 10 11 12 13 14 15 16 17 18 19* 1201months.
03 05 07 09 11 13 15 17 19*

Completions and Absorption Sales Trends

Completions Absorption Sales CONSTRUCTION
Price Growth

32 Average Price per Unit (000s)

$120 24,100 units completed15%
Y-O-Y

Year-over-Year Growth
$90• Construction ticked up slightly during the past
10% year as developers
Units (000s)

24
sought to capitalize on decreasing vacancy. Since October of last
$60 5%
16 year, more than 24,000 apartments were built, while a little more
than 23,000 units were completed one year earlier.
8 $30 0%
• More than 51,000 apartments are under construction, with
0 $0 completion dates reaching into 2022. Frisco is on tap to receive
-5%
09 10 11 12 13 14 15 16 17 18 19* 4,300
09 10 of11those
12 units.
13 14 15 16 17 18 19*

Vacancy Rate Trends

Metro United States VACANCY
12%
30 basis point decrease in vacancy Y-O-Y
10% • Market vacancy hit its lowest level in nearly 20 years at the end
Vacancy Rate

of the third quarter as the rate stopped at 4.5 percent. Last year,
8% the reading dropped 40 basis points.

• The wave of luxury units delivered over the past several years has
6%
yet to substantially impact Class A vacancy. The rate fell 50 basis
points over the past year to 5.0 percent. At the same time, Class B
4%
09 10 11 12 13 14 15 16 17 18 19* vacancy dropped 30 basis points to 4.4 percent.

Rent Trends
Monthly Rent Y-O-Y Rent Change
RENT
$1,200 10% 4.6% increase in the average effective rent Y-O-Y
• The average effective rent continues to rise, increasing 4.6 percent
Year-over-Year Change
Monthly Effective Rent

$1,000 5%
during the past four quarters to $1,174 per month. Class C apartments
led rent growth at 6.6 percent, while the average Class B and A rates
$800 0%
climbed 4.3 percent and 3.7 percent, respectively.
$600 -5% • Roughly a third of the metro’s 48 submarkets recorded rent growth
above 5 percent during the past year, with areas adjacent to Dallas’
$400 -10% urban core posting some of the most pronounced gains.
09 10 11 12 13 14 15 16 17 18 19*
* Forecast
Source: CoStar Group, Inc.
Demographic Highlights

3Q19 Median Household Income 3Q19 Affordability Gap Multifamily (5+ Units) Permits

Metro $73,554 Renting is $712 Per Month Lower 24,972 1H 2019

U.S. Median $65,205 Average Effective Rent vs. Mortgage Payment* h 10% Compared with 1H
2016-2018

3Q19 Median Home Price Five-Year Household Growth** Single-Family Permits

Metro $265,820 266,400 or 1.9% Annual Growth 32,908 1H 2019

Compared with 1H
U.S. Median $272,227 U.S. 1.0% Annual Growth
h 1% 2016-2018

*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2019-2024 
Annualized Rate

SUBMARKET TRENDS SALES TRENDS

Strong Bidding Climates Putting Pressure on Yields;
Lowest Vacancy Rates 3Q19**
Employment Trends Fort Worth Capturing InterestYield
Local Apartment of Private
Trends Groups
Metro Y-O-Y United States • Sustained investor interest
Apartment in the Metroplex
Cap Rate continues
10-Year Treasuryto weigh on
Rate
Vacancy Average Y-O-Y %
Submarket 6%
Rate
Basis Point
Effective Rent Change
yields, bringing the average cap rate down 30 basis points during the
12%
Change
past year to 5.9 percent.
Year-over-Year Change

3%
Northwest Dallas 2.8% -20 $964 3.0% • Pricing remains
9% on a steady incline, climbing 5.4 percent to $104,600

per unit. Supporting the increase were valuations for Class A units,
Rate

0%
South Irving 3.2% -70 $976 4.7% which rose 86%
percent to an average of $159,300 per unit.

-3% Outlook: Value-add opportunities in and around Fort Worth’s urban core
Southern Dallas County 3.5% -50 $1,063 4.7% 3%
will become more abundant moving forward as the area continues to re-
-6% vitalize. Units selling in the $50,000 to $70,000 range will lure a variety
Southwest Dallas 0%
09 103.8%11 12 60
13 14 15$92616 17 7.2%
18 19* 01 03 05 07 09 11 13 15 17 19*
of private buyers.

Carrollton/Farmers Branch 3.9% 0 $1,168 4.6%

Completions and Absorption Sales Trends

Denton 3.9% -10 $1,054 0.8%
Completions Absorption Sales Price Growth
Average Price per Unit (000s)

Grapevine/Southlake 3.9% -80 $1,356 4.6% $120 15%

32
Year-over-Year Growth
Units (000s)

South Arlington-Mansfield 3.9% -50 $1,162 6.1% $90 10%

24

$60 5%
Addison-Bent Tree 16 4.0% -80 $1,214 2.9%

8 $30 0%
North Dallas 4.1% -190 $1,109 3.9%

0 $0 -5%
Overall Metro 09 104.5%11 12 -30
13 14 $1,174
15 16 17 4.6%
18 19* 09 10 11 12 13 14 15 16 17 18 19*

* Trailing 12 months through 3Q19

** Includes submarkets with more than 7,000 units of inventory Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Vacancy Rate Trends
Metro United States
12%
 CAPITAL MARKETS
1H19 Apartment Acquisitions By DAVID G. SHILLINGTON, President,
By Buyer Type Marcus & Millichap Capital Corporation
Other, 1.6% Cross-Border, 7.5% • Fed cuts rate again, while balancing assortment of factors. The Federal
Reserve cut the overnight rate by 25 basis points at the end of October, the third
Equity Fund
& Institutions, 18.9% reduction in less than 100 days in an attempt to lengthen the economic runway.
Muted inflationary pressure and continued trade negotiations have boosted the
probability for an additional rate cut in December as it is anticipated by some
Listed/REITs, 5.0% domestic and foreign markets. However, at the end of October, the U.S. and China
Private, 67.0%
were in talks for finalizing the first phase of a trade deal, potentially erasing the
need for another rate reduction if the preliminary agreement quickly comes to
fruition. This, along with positive economic indicators like strong wage growth,
sustained job creation and a rising 10-year Treasury, will continue to make future
Apartment Mortgage Originations
decisions difficult for Fed members as they balance the array of forces tugging at
By Lender
both ends of possible outcomes. Global developments including slowing Euro-
100% pean economies as well as the progression of Brexit and its potential aftermath
will also help determine future Fed decisions. Though recession risks remain, the
Percent of Dollar Volume

Gov't Agency
75%
Financial/Insurance
economy’s solid foundation has softened it in recent months, signaling continued
Nat'l Bank/Int'l Bank domestic growth in the near future.
50%
Reg'l/Local Bank
• Abundant liquidity balances conservative underwriting. Debt financing for
CMBS
25% apartment assets remains strong, supported by a variety of lenders. Fannie Mae
Atlanta Office: Michael Glass First Vice President/District Manager
and Freddie Mac, two mainstay apartment capital sources, were recently given
michael.glass@marcusmillichap.com
John Leonard First Vice President/Regional Manager
0% increased lending caps, allowing the two Government Sponsored Enterprises
1100 Abernathy Road N.E., Bldg. 500, Suite 600 Cleveland Office:
15 GA16
Atlanta, 17
30328 18 1H19 to purchase
5005 Rockside $100
Road, Suite 800billion in loans during a yearlong period that started at the
(678) 808-2700 | john.leonard@marcusmillichap.com Independence, OH 44131
beginning of the fourth quarter 2019. A wide range of local, regional and national
Includes sales $2.5 million and greater (216) 264-2000
Sources: CoStar Group, Inc.; Real Capital Analytics banks; pension funds; insurance companies and CMBS sources will also remain
Columbus Office:
active. All have responded to the falling interest rate climate by reducing mort-
230 West Street, Suite 100
Columbus, OH 43215but lender spreads have widened as the 10-year Treasury rate remains
gage rates,
(614) 360-9800
near cycle lows. Given the downward pressure on interest rates, lender caution
Austin Office:
has risen,
Cincinnati Office: particularly for construction loans. Though lending is still available for
CraigGroup
National Multi Housing Swanson Vice President/Regional Manager
9600 North Mopac Expressway, Suite 300 these types of projects, investors may need to blend mezzanine debt with other
John Sebree Austin, TX 78759 Colby Haugness Regional Manager
capital
600 Vine Street,sources
10th Floor until they prove out their concepts and substantially fill units. For
(512)
First Vice President, 338-7800
National | craig.swanson@marcusmillichap.com
Director | National Multi Housing Group Cincinnati, OH 45202
stabilized existing assets in most major markets, financing remains plentiful.
Tel: (312) 327-5417 | john.sebree@marcusmillichap.com (513) 878-7700 | colby.haugness@marcusmillichap.com

Prepared and edited by

Brandon Niesen
Research Analyst | Research Services
Baltimore Office: Dallas Office:

Bryn
For information on Merrey
national apartment
Seniortrends, contact:
Vice President/Division Manager Tim Speck First Vice President/District Manager
John Chang 100 E. Pratt St., Suite 2114 5001 Spring Valley Road, Suite 100W
Baltimore, MD 21202 | Research Services Dallas, TX 75244
Senior Vice President, National Director
Tel: (202) 536-3700 | bryn.merrey@marcusmillichap.com (972) 755-5200 | tim.speck@marcusmillichap.com
Tel: (602) 707-9700 | john.chang@marcusmillichap.com

Fort Worth Office:

Price: $250
Mark McCoy Regional Manager
300 Throckmorton Street, Suite 1500
Boston Office:
© Marcus & Millichap 2019 | www.MarcusMillichap.com Fort Worth, TX 76102
(817) 932-6100 | mark.mccoy@marcusmillichap.com
John Horowitz First Vice President/Regional Manager
100 High Street, Suite 1025
Boston, MA 02110
(617) 896-7200 | tim.thompson@marcusmillichap.com
Denver Office:
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee,
express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated based on the last month of the quarter/year. Sales data
Skyler Cooper Regional Manager
includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide
1225 17th Street, Suite 1800
specific investment advice and should not be considered as investment advice.
Denver,
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; CO 80202
National Association of Realtors; Moody’s Analytics; Real Capital Analytics; RealPage, Inc.; TWR/Dodge
Charleston
Pipeline; U.S. Census Bureau Office: (303) 328-2000 | skyler.cooper@marcusmillichap.com

Benjamin Yelm Regional Manager

151 Meeting Street, Suite 450
Charleston, SC 29401