Why the Dallas Market is a Prime Investing Opportunity
With a slogan like “Big-D,” it’s clear that Dallas has a healthy ego. Given the metropolitan area placed first in Oxford Economics’ study on projected U.S. city growth through 2021, and Dallas came in fourth on Business Insider’s 2018 list of cities with the most financial stability and business opportunities, the self-esteem is merited. The city’s robust health is also great for the Dallas real estate market.
It all starts with population growth. The nation’s largest population growth last year came in the Dallas metropolitan statistical area – known as the Metroplex—which includes Ft. Worth and Arlington and is the fourth largest metro area in the country according to the U.S. Census Bureau. Dallas is always on the shortlist for corporate headquarters relocations due to the city’s talented workforce, pro-business orientation, tax-friendliness, a cheaper cost of living than many other American cities, and two airports that will get you a direct flight almost anywhere in the country.
Among financial services companies, there is a growing trend to move jobs and business operations to lower cost, more business-friendly locales. That’s where Dallas comes in; the Metroplex gained more than 100,000 jobs in 2017, according to the Bureau of Labor Statistics, and Dallas was the highest ranked city for job growth in the nation. Over 31,000 of the new jobs were in professional and business services, and over 18,000 were in leisure and hospitality.
Growth Has Spurred Investment in the Dallas Real Estate Market
Millennials come to Dallas to get good jobs and enjoy comforts that range from great neighborhoods and cultural attractions to warm weather and low taxes, and so do empty nesters. But many in this older generation also choose to retire in Dallas – especially Baby Boomers, who move here to be close to their millennial children and then never leave.
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Migration to this vibrant market will continue to benefit real estate investors, especially in commercial and multifamily. Cushman & Wakefield says Dallas-Fort Worth has 3.3 million square feet of new office development, half of it preleased, and at year-end ranked first in the nation in occupancy growth. And Dallas had the nation’s largest new homebuilding market last year, issuing almost 50,000 residential construction permits. The Dallas building boom makes sense given its 18% high employment growth, 11% income growth and a 53% increase in home value from 2010 to 2016.
Interestingly, the Dallas real estate market is one of the few markets where renting is more reasonable than buying, thanks to the rapid increase in home values and rising mortgage rates. Not surprisingly in light of the numbers, Dallas’s homeownership rate is lower than all but a handful of major metropolitan areas.
Commercial and Multifamily Real Estate Trends in Dallas
Thanks to its excellent market fundamentals, Dallas rents grew 2.2 percent in 2017, even as the city added more new rental stock than any other U.S. metropolitan area. While the average asking rent in Dallas is still an affordable $1120 per month, according to Fannie Mae, apartments in hot neighborhoods such as Uptown and Highland Park are well above that rate.
Millennials who don’t want to leave the urban lifestyle behind often land in Uptown, Dallas’ premier live-work community. New apartments that are less than 1,000 square feet rent for $1,800 or $2,000 a month in that area. Origin is following its value-add strategy here, updating older office buildings to attract new tenants and justify the higher rents of this appreciating area.
For young families buying a home, it’s harder to make the math work. The starter homes that were $350,000 a decade ago now cost more like $600,000. Dallas’ central school district is improving rapidly, but the most attractive schools are where homes cost more than $1 million. The answer: suburban enclaves with urban amenities.
Legacy, the master-planned community north of Dallas in Plano, is a widely successful suburban-urban node. This is where JPMorgan is consolidating, where Toyota has moved its headquarters from California and where JC Penney leased 1.1 million square feet of space last year. Richardson, where Origin has office investments, is a regional hub for State Farm Insurance and the main campus of the University of Texas at Dallas. Geico leased 228,506 square feet there last year.
But the best part of the Dallas equation is the city’s growing national reputation as a cultural hub. As the New York Post noted in April, “it’s about time the rest of the country gave Dallas a bit more credit. It deserves to be recognized with its urban counterparts on both coasts.” A recommendation like that only means great things for the city’s future growth—and appreciation for Dallas investment properties.