Once associated almost exclusively with Cowboys and Rangers, Dallas, Texas, is increasingly becoming a town of Mavericks and Stars thanks to its ongoing transforming into one of the South’s premier tech hubs.
The population of the Dallas-Fort Worth Metroplex grew by 2.02 percent from 2016 to 2017 (trailing only Orlando’s 2.30 percent growth rate among the nation’s 25 most populous metro areas), and the area has added nearly a million new residents since 2010. Much of this growth has been driven by a 9 percent expansion of the Metroplex’s Millennial cohort (defined as those age 20 to 34), an expansion CoStar expects to continue through at least 2022.
Many of these Millennials are flocking to Dallas to take advantage of its extensive employment opportunities, as Forbes has ranked the Dallas-Plano-Irving area as the hottest job market in the country for two years running. The Dallas area added 91,700 jobs in 2017 alone, with particularly strong growth in both the financial services and tech sectors.
In the former, employment opportunities were growing by 3.9 percent as of September 2017, more than double the 1.7 percent national growth rate. In the latter, employment opportunities continue to expand at a remarkable pace — there are now nearly 125,000 tech sector jobs in the Dallas area, a 43.2 percent increase since 2006.
This influx of residents — especially younger ones — and robust job growth has had a direct effect on Dallas’ commercial real estate (CRE) markets. According to Reonomy data, overall CRE sales in the Dallas area increased by 119 percent between 2006 and 2016, driven largely by spikes in two asset classes: multifamily residential properties and office spaces.
Massive Multifamily Growth in the Metroplex
According to Fannie Mae’s Multifamily Metro Outlook: Dallas Winter 2018 report, roughly 65,000 apartment units have been completed in the Dallas area since the beginning of 2012. As of 2018 Q1, an additional 24,000 units were under construction and an additional 29,000 units were in the planning stage.
Digging a little deeper, Reonomy data shows that total sales of multifamily properties in the Dallas area increased by 33.7 percent from 2012 to 2015, a major factor in PwC’s ranking the Metroplex as the top U.S. “market to watch” in September 2015. During this same interval, the median price of multifamily sales jumped from just over $821,000 to $1.1 million, an increase that has continued to this day — the median sales price of multifamily properties in Dallas sits at $1.6 million through the first two quarters of 2018.
Last year was a particularly strong year for multifamily sales in Dallas, with a handful of massive deals pushing the mean multifamily sales price into eight figures in Q1, Q3, and Q4. The year’s top three sales alone — 17671 Addison Road in Dallas, 1920 Tarrant Road in Grand Prairie, and 14665 Preston Road in Dallas — collectively accounted for nearly $475 million in business.
Riding Enterprise Activity to the Top
Unlike other rapidly expanding job markets, Dallas’ growth is attributable more to traditional enterprises than to startups. Following Fortune 500 firms like American Airlines, Kimberly-Clark, and Tenet Healthcare, corporate behemoths like Verizon, Texas Instruments, and Raytheon have established presences in Dallas over the last decade. What’s more, both AT&T and Toyota have recently relocated their North American headquarters to the Metroplex, leading to a huge spike in demand for office space.
Because of this reliance on bigger businesses, the market for office properties in Dallas has not so much expanded as increased in value. In fact, the total number of office sales made from 2013 through 2017 was actually 5.7 percent smaller than the total number of sales made during the previous five-year period. This transactional stagnation should not be mistaken for overall market stagnation, however, as the median price of sales made from 2013 through 2017 was an impressive 47.7 percent higher than the median prices of sales made from 2008 through 2012.
In short, since Dallas hasn’t had a host of startups buying office space, folding or getting bought out, and then selling that office space, its transaction volume has remained relatively unchanged over the last decade. That said, stabler, more predictable companies continue to invest in larger, higher-value offices to accommodate their ballooning workforces, driving Dallas’ median sales price through the roof.
All indications suggest that this current state of affairs is likely to continue for the foreseeable future. Projects like the Dallas Smart District — on which developers expect to break ground in the fall — will add even more office, multifamily residential, and retail assets to one of the country’s hottest CRE markets. Ultimately, such lofty plans indicate that developers are continuing to dream — and build — big in D-Town.
Rich Sarkis is CEO of Reonomy. The views expressed here are the author’s own and not those of ALM’s Real Estate Media.