Much of the strength in Fort Worth can be attributed to limited new supply and job growth that is accelerating while many of the other markets around the state have seen a pullback.
The greater Fort Worth apartment market remains strong and a leader in the state. At a time when we are delivering some of the highest volume of new units this cycle, 25,900 new units across Dallas-Fort Worth in 2018, occupancy has increased modestly, and the Fort Worth market continues to lead many of its peers, including Dallas, in rent growth and occupancy projections. Occupancy in Fort Worth rose to a healthy 95.3 percent, with Dallas running lower for a third consecutive year at 95.1 percent. Much of the strength in Fort Worth can be attributed to limited new supply and job growth that is accelerating while many of the other markets around the state have seen a pullback. The Fort Worth market has seen job growth increase by almost 65 percent in the trailing 12 months with 22,600 jobs, compared with calendar year 2015 when we saw just 13,800 new jobs added.
Supply, while up, is still less than that of many other markets throughout the state on a percentage-of-existing-stock basis. Additionally, the supply is well balanced between top of the market core buildings and more suburban assets throughout the county. Several of the core properties opening their doors in the heart of the city are some of the highest rent and most luxurious assets ever built in Fort Worth.
Suburban markets, with less supply than the urban core, continue to outperform with markets like North Arlington and the mid-cities leading the pack. North Arlington is actually the top submarket for rent growth anywhere in Dallas-Fort Worth through the current cycle. With this, we are starting to see new developments, which are long overdue, being planned for that market.
Even while there is diversity from suburban garden to urban mid-rise among the new buildings being delivered, they do all tend to be at the high end of their respective markets. For this reason, the Class B and C airspace continues to outperform with occupancy and rent growth almost double that of the Class A sector. Although down from the peaks of the cycle, rent growth in the B and C space is still trending in the four and five percent range while the Class A properties in markets with more supply have seen occupancy slide marginally and rent growth drop to the very low single digits.
The sales market continues to be robust, despite some initial pressure from rising interest rates. Buyers have become more creative in how they are structuring their debt, and Fannie Mae and Freddie Mac continue to be active with major allocations for multifamily going into 2019. Cap rates in the Class A space remained constant year-over-year, but buyers have tended to be more conservative in their underwriting to protect themselves from the pressure emerging from additional new supply. Because of the strong performance, Class B and C cap rates have actually trended down, counter to what one might think in a rising interest-rate environment. Many companies see the lack of affordable housing options as a long-term demand driver for the Class B and C properties, as it is impossible to reproduce affordable workforce housing.
2019 looks to be a continuation of the mostly positive trends from last year. Transaction volume should remain high, and pricing will hold firm for multifamily assets. Fort Worth continues to elevate itself in the eyes of investors with more and more new companies, from major institutions all the way down to private individuals, recognizing the strong momentum in this market compared with others around the state.
Drew Kile is a senior director at Institutional Property Advisors, a multifamily brokerage division of Marcus & Millichap serving institutional and major private investors. In 14 years with the firm, he has facilitated and overseen the closing of transactions valued at nearly $6.5 billion, including $1 billion of Tarrant County apartment sales in the last three years.
Sources: Marcus & Millichap Research Services, Real Page Inc., U.S. Census Bureau BLS