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Last year, almost 100 percent of the apartments built in Dallas-Fort Worth had something in common: They were all high-end rental units.
With developers in the biggest apartment-building market in the country aiming for the same slice of the rental pie, North Texas now ranks high among markets with the largest share of pricey, luxury apartment building.
D-FW has more high-end apartment building than any other metro area in the country, according to a study by Yardi Systems, just as in 2017. Nationwide, 8 out of 10 apartment communities that opened last year targeted high-end renters.
"Encumbered by high construction costs and encouraged by a surge in demand for rentals, developers have bet big on high-end apartments," Yardi analysts say. "Back in 2012, high-end properties represented about half of all new completed construction, but now these projects occupy the lion’s share of the multifamily industry.
"Nationally, about 87 percent of all large-scale apartment buildings completed in the first half of 2018 are high-end."
The surge in construction of deluxe rental units comes at a time when demand for affordable apartments in major U.S. markets is at an all-time high.
"Almost all of the new dwelling units being delivered are Class A — they are higher-end product," said John Sebree, national director with commercial property firm Marcus & Millichap. "The number of new high-end households being created is a much smaller percentage.
"A large percentage of those new households are B and C apartment tenants, and we are not creating any more B and C product."
What’s worse, thousands of older B and C apartments around North Texas are being knocked down for pricier rental communities.
(The share of high-end apartments being built nationwide has almost doubled./Yardi Systems)
Because of the shrinking pool of older apartments, rents in those units are rising at a higher percentage than new luxury apartments that are flooding some markets.
High-end apartment rents are up less than 1 percent this year in D-FW, and neighborhoods with older units are seeing rents rise more than 3 percent.
"The strongest rent growth has been in the neighborhoods where we are not building much in this cycle," said Greg Willett, chief economist with Richardson-based RealPage. "We have really filled up the neighborhoods where you see Class C units.
"Historically, you have had chronic vacancies there. Those areas are now jam-packed full."
While D-FW’s employment base and population are growing, incomes are not rising fast enough to keep up with apartment rents, which have grown almost 40 percent in North Texas since the recession.
"A bigger share of the population can only afford those Class C units," Willett said. "They have been priced out of the middle market and upper-tier properties."
Developers say rising land, construction and financing costs make it almost impossible to build workforce apartments in many urban areas.
"We have chosen to play in the upper end," said Tom Bakewell, one of the founders of Dallas-based apartment builder StreetLights Residential. "We are going to go even higher-end."
StreetLight’s newest Dallas rental high-rise on the edge of Highland Park has average rents of $5,000 — almost five times the D-FW average. Tenants’ average age in the McKenzie building is in the 50s, and they lease units for as long as two years.
"We are going to try and roll these out in more cities," Bakewell said. "We will only do a few of them in most markets."
Dallas and Fort Worth have one of the country’s largest shares of new high-end apartments.