Earlier this week, we kicked off the inaugural NorCal Apartment Investor Network (AIN) Speaker Series with a presentation from David Kahn, Senior Market Analyst for CoStar Group. David focuses on the Dallas-Fort Worth (DFW) metro area and the greater Texas commercial real estate market.
When asked why investors should look to the multifamily market in Texas, David gave one main reason: jobs. In Texas, and DFW in particular, job growth has been roughly double the national average this cycle. When you combine that kind of job growth with some of the highest net population increase rates in the nation, you have the perfect conditions for rising housing demand and accelerating rental growth rates.
Dallas-Fort Worth has a huge, diverse housing stock, a wide range of industries, and a growing population. Houston continues to be tied to the energy industry, with its inherent ups and downs, but Hurricane Harvey reset the housing market and employment is now up. Austin and San Antonio are smaller markets, susceptible to minor economic changes, but with potential for fast investment gains.
National trends show multifamily construction centered in the urban cores of most metro regions. However, in Texas, David’s analysis shows major growth is happening in the suburbs, where many large employers are relocating or expanding. Beyond major cities, Texas also has promising secondary markets. Midland-Odessa, Tyler, Longview, Sherman-Denison; some are true up-and-comers, others require more patience, but one big job announcement for any of them could bring good opportunities for apartment investors.
While job growth makes Texas an attractive market, it is important to consider current and upcoming inventory levels. David acknowledges a history of housing oversupply in Texas but, he points out, this makes the state affordable and, though not always ideal for apartment owners, such affordability keeps jobs and people coming to the state.
Other global and national concerns that could impact Texas housing markets are the possibility of escalating trade wars, and the volatility of the energy industry. Houston, a major seaport, and DFW, a hub for highway and rail distribution, would both feel the effects of trade impediments. As for energy fluctuations, Houston is most vulnerable but all Texas markets would be affected by sudden drops in oil or natural gas prices.
Regardless, David reminds us that Texas is used to boom and bust cycles. DFW has successfully rebounded from finance and energy collapses in recent decades. Also, Texas survived the foreclosure crisis better than many other states. Dallas then took some time to get back to historic building levels, bringing the household formation to housing units ratio into equilibrium.
Looking ahead, David predicts Texas job growth is likely to hold at twice the national rate. Outside interests will continue to invest in Texas. Rent growth, while still positive, will decelerate for the next few years as new supply enters the market. Aside from that brief stall, Texas should remain a top performer in multifamily rent growth so long as the healthy job market endures.
We thank David Kahn for joining us in San Jose, to share his time and expertise. If you would like a copy of his presentation or if you have questions about CoStar’s services, you may reach David at dkahn@costar.com.
About Multifamily Property Group
Multifamily Property Group (MPG) is a Silicon Valley based, vertically integrated, private equity real estate company focused on acquiring, repositioning and operating value-add multifamily properties in select high growth US markets. MPG currently owns and operates a significant portfolio of Class B & C assets in the Dallas-Fort Worth Metroplex.
About Apartment Investor Network
We are a California based real estate networking group focused exclusively on apartment investing. Our mission is to help investors get plugged into some of the hottest out-of-state multifamily real estate markets in the nation. AIN is proudly sponsored by the Multifamily Property Group, Old Capital Podcast and Brad Sumrok Apartment Investor Mastery.