Most of the construction cranes in Dallas’ downtown and Uptown districts aren’t for office towers or hotels.
It’s high-rise residential buildings that are remaking the skyline, with thousands of new units either on the way or just completed.
Dallas-Fort Worth leads the country in apartment construction. And never have there been so many high-rise rental units in the development pipeline.
Our runaway economic growth — more than 100,000 new North Texas jobs in the last year — has fueled an unprecedented demand for apartments.
That’s why the rental market has absorbed almost everything developers have thrown at it over the last few years.
But just how many $2,500- and $3,000-a-month apartments can landlords rent in all the new apartment towers on the way in Dallas?
We’re about to find out.
The first buildings in a wave of new high-rise luxury rental units are opening up in Victory Park north of downtown. More are on the way in nearby Uptown and other close-in neighborhoods.
There’s even a 29-story apartment tower under construction up in Plano’s boomtown, Legacy West.
“We have 18 high-rise buildings that are either under construction or have been delivered in this cycle,” Steve Bancroft, senior managing director of Dallas-based apartment builder Trammell Crow Residential, recently told a business group. “It’s about 5,400 units.
“It’s kind of a game-changer for Dallas. In the last cycle, we built only four or five of these buildings.”
Bancroft said that a decade ago, high-rise apartment rents peaked at near $2.25 per square foot. Now buildings are asking between $3 and $4 per square foot monthly.
“I think there will be winners and losers,” he said. “This is the No. 1 reason to be cautious.”
With more than 50,000 apartments under construction, the North Texas rental market is already feeling a pinch.
Apartment rents are rising at less than half the rate of a year ago. Last summer, average rents for North Texas units were almost 6 percent higher than in 2015.
As of July, Dallas-area rents were up a measly 2.4 percent, according to the latest numbers from apartment researchers at Axiometrics. Rent increases in markets with the most construction — Uptown and Dallas’ Oak Lawn neighborhoods — are even smaller in some cases.
While that’s good for renters who’ve seen a spike in monthly costs, it’s troublesome for builders who are still seeing expenses soar for everything from land to lumber.
And it’s not just the new buildings that could see problems.
Even before the current crop comes to market, high-rise rental units are facing competition from the latest flavor of luxe living that offers everything from private poker rooms to double dog parks to woo away their tenants.
Mike Puls, who’s a consultant for new multifamily residential developments and has been tracking the Uptown market for over a decade, says he’s already seeing rent declines at some high-rise apartment buildings.
So far, occupancy levels in most of the projects are holding up, according to Puls of Foley & Puls. He said there are too many small rental units in the mix.
“There are a lot of millennials, and they are getting older,” he said. “They want bigger units.”
Most new apartments in Uptown and downtown Dallas are offering a month’s free rent if you sign a lease. A few projects are stretching the giveaway a bit further to six weeks gratis.
Landlords will have a harder time wrangling significant rent increases and keeping the freebies in check with so many expensive new properties opening their doors.