At the end of 2017, it appeared as if the Dallas-Fort Worth apartment market was finally reaching a late-cycle phase. Rent growth and absorption were slowing, concessions were rising and supply was cresting. Perhaps most importantly, the critical driver of apartment demand, job growth, was slightly weaker last year than the 2015 and 2016 levels.
But after an impressive first half of 2018, the D-FW apartment market is not only looking stronger than it was in this time last year, but it is on firmer footing, too.
Job growth accelerated in early 2018, as the metroplex added more than 120,000 jobs in the 12 months ending in May 2018. This job growth exceeded expectations, and helped contribute to remarkably strong absorption in the first half of 2018. Net absorption totaled more than 12,000 units during the first two quarters of 2018, which was the best consecutive two-quarter mark this cycle.
Strong absorption, combined with slightly fewer deliveries than anticipated, caused vacancies to fall to where they were in the second quarter of 2017.
Annual rent growth has cooled, but only slightly. Rents grew nearly 2.5 percent in the first six months of 2018. In comparison, rent growth was about 3 percent through the first half of 2017. However, the metro’s seasonal trend of flattening rent growth in the latter months of the year will likely persist once again in 2018, so growth expectations should be tempered.
After rising consistently since late 2015, concessions appear to have topped out. Aside from a few rare circumstances, concessions are still only prevalent in properties in the lease-up stage, or in recently built properties that are located close to properties in lease-up.
Lease-ups average concessions of about one month free metro wide is similar to what the last round of deliveries averaged. Though there are a handful of properties offering six to eight weeks free, D-FW has avoided the three-month- free concessions that places like Nashville and Houston (during the oil bust) have seen in recent years.
While supply has likely crested, there are still plenty of new units on the way. There were about 36,000 units under construction as of the end of June 2018, which is less than the 38,000 under construction in the first quarter last year. Notably, a slew of new projects were anticipating June openings, but many of those deals were pushed back to early July, so expect a surge of deliveries this quarter.