We are continuing our review of the major metro real estate markets in Texas. This week we will spotlight Dallas / Fort Worth.
Five Texas cities were among the top 10 U.S. cities in population growth between July 1, 2013, and July 1, 2014 — Houston, Austin, San Antonio, Dallas and Fort Worth, with each adding between 18,000 to almost 36,000 people in that 12 month period.
Texas continues to attract transplants from other states due to stellar job creation. In 2014, Dallas / Fort Worth added 112,100 jobs, and in 2015 we should see a 3.6 percent increase. Over the past 12 months, the Metroplex has created jobs at a 3.3 percent rate, second only to Austin, which grew 3.6 percent.
The economy in the Metroplex flourished in the first five months of 2015 and added more than 100,000 jobs year over year through May to outpace the rate of growth for the entire state. Statistically, one new job can support 2.6 new residents, so DFW is still on the course of continued population growth.
In June, the unemployment rate fell to 3.7 percent in Dallas and held steady at 3.9 percent in Fort Worth, while edging down to 4.2 percent in Texas. All three figures are lower than the U.S. rate of 5.3 percent. Unemployment in both Dallas and Fort Worth is below its prerecession low of 4.1 percent. Remember that 4% unemployment is considered near full employment, because there will always be some number of peole in between and looking for jobs.
Five years ago there was an abundance of vacant office space due to the recession. The good news is that professional and business services payrolls, for example, are 18 percent larger than the pre-recession peak through year-end 2014, while financial services staffs expanded by a similar amount. Since those previous thresholds were reached, office inventory has grown only 6 percent. This has obviously put a strain on finding office space, which is good news for landlords and developers.
Further gains in employment in these major office-using sectors will continue to help alleviate the supply imbalances that will arise in the months ahead. Developers will finish 7.5 million square feet of office space this year, featuring headquarters space for State Farm, Raytheon and FedEx. To put that in perspective, last year roughly 3.6 million square feet was finished and absorbed. Supply will grow and should outstrip demand temporarily, moving vacancy closer to 20% for the 12 county area. That said, most of north Dallas and the northern counties will continue to be challenged as office space is at a premium. There have been close to 20 million sq. ft of expansions and relocations in 2014 -15 announced, with more certainly coming.
Apartment developers will complete 20,000 units in the Metroplex in 2015, increasing inventory nearly 3 percent. This year deliveries are up from the 15,600 units completed in 2014 and will be the largest addition to inventory in more than a decade. As in the office channel, apartment supply will outstrip demand. However 94% occupancy is a healthy market as evidenced by continued rent increases. The good news is that more deliveries that were scheduled for 2015 /16 have been delayed, keeping the market healthy for developers and equity.
Developers will complete 3.0 million square feet of retail space in the Metroplex this year, of which more than 90 percent is pre-leased. Last year, developers brought 2.9 million square feet of space online. Rents will continue to rise, advancing 2.6 percent year over year. This is down slightly from the 2.8 percent growth in rents realized in 2014.
Single family residential
With resale inventory at 2.2 months of supply, the Dallas area leads the country in home price gains presently. Median home sales prices are more than 10 percent higher this summer than a year ago. In some neighborhoods the price hikes this year are two to three times that rate. Prices for homes are up 30 percent in Oak Cliff, 29 percent in Fairview, and 22 percent in North Dallas in the first six months of 2015. Additionally, prices were up 15 percent or more in a dozen other Dallas-area neighborhoods, according to a midyear analysis of the North Texas home market based on data from the Real Estate Center at Texas A&M University. Those areas seeing strong appreciation are in inner city locations where new construction is beginning to replace older homes.
Single-family home construction has continued to increase in the Metroplex. Year to date through May, single-family permits are up 30.5 percent in 2015 over the same period last year. The ability for employees to be able to afford a home compared to most areas in the nation may be the single biggest cause for this push. New home construction is around 30,000 to 35,000 homes a year. While this places DFW among the nation’s most robust building markets, it is still less than 50% of the number of new homes being built before the recession.
DFW median home prices are at an all-time high of $220,000, and homes are selling for about 60 percent more than they were at the worst of the recession in early 2010. Overall, Dallas / Fort Worth and its suburbs have a well based multi-industry growth that should maintain its strength over the next 4 to 5 years.