2018 D/FW State of Industry

by Sherry Jordan, LumaCorp, AATC President

The 2018 Economic Outlook for the Multifamily Industry is strong.

What exactly is our state of the industry? Well, as of January 9, 2018, we have a insight of what to expect for the coming year as all those who attended our annual AAGD-AATC SOI Luncheon. If you want some insight into what to expect, then keep reading!

AAGD-AATC State of the Industry (SOI) economic forecast panelists Jay Denton, Senior Vice President with Axiomatics; Jeff Price, Managing Director with JLL Capital; and Brian O’Boyle, Vice Chairman of ARA foresee a strong 2018 for the DFW multifamily industry.

Jay, Jeff, & Brian point out the multifamily industry contributes $25 billion to the Metroplex economy and supports more than 240,000 jobs throughout the region.  Although there are numerous unknown factors, they anticipate DFW job creation to remain strong with a slight deceleration in job-growth rate.

The panelists predict decelerating occupancy in the 94% range, but occupancy depends on job and wage growth.  Rent increases will continue with some areas of Dallas exceeding $3 per square foot and more than $2 per square foot in the suburbs.  For comparison, $8 per square foot is the average in New York City.  Most significant, they shared that Class C properties were the highest performing asset class the previous 18-months.

Brian, Jay, Jeff believe new apartment development will continue throughout DFW this year.  Jeff, Jay, and Brian point out that development in the urban cores is rising with high-rise (8-stories or higher) stock increasing by more than 40% during this latest development-cycle, but, interestingly, more than 70% of apartment residents live in Metroplex suburbs.

These experts caution that new development means stabilized properties will be less aggressive on rent increases and must do a better job managing renewals.   Increased supply also impacts the ability to lease higher-priced units.  As expected, Jay, Jeff and Brian are concerned that supply does not outpace demand.

Apartment values and buyers are at all-time highs according to Brian, Jeff, & Jay.  Apartment sales in 2017 were down 5%, but they expect 2018 sales to be strong.  Investors can expect cap rates in the 4.5 to 5.5 range with C-deals at 6. They reminded us that onsite staff performance significantly impacts sales.

While there have been significant increases in foreign-capital and owner-managed properties, the clear majority of DFW multifamily properties continue to have third-party management.