The Ten-X research report observes that a record 260,000 completions were reported in 2016, with another roughly 250,000 expected to arrive this year. While absorption remains strong, this massive infusion of supply will drive vacancies as high as 5.6% during the course of 2017 before climbing above 6% during a modeled cyclical downturn beginning in 2019.

Ten-X also notes that homeownership, which has been declining sharply for years, has begun to show signs of stabilization. While demand for apartments should remain largely unaffected, absorption rates could slow should the trend begin to gain steam. Overall economic indicators, including steady employment growth and rising wages, may provide a boost to the market for millennials saddled with student debt by pushing them out of parents' homes and into the rental market.

“For years, the multifamily sector has been reveling in the spoils of a massive cultural shift toward urbanization and falling homeownership. As Americans continue to move to certain major cities in droves, developers have responded by making huge investments in those areas, flooding the market with new apartments,” said Muoio. “While many larger metros appear to have reached a critical mass of supply and are now seeing fundamentals begin to cool, a strong economy and more limited development continue to make multifamily an attractive bet for investors across the country.”

The mild uptick has already begun to slow rent growth, as evidenced by a 0.7% seasonally adjusted increase in the third quarter–the slowest quarterly gain since 2013. Ten-X research predicts rents will continue to grow by roughly 3% per year until 2018, before leveling off to roughly 1% gains in the two-year modeled downturn.

“Looking ahead, we expect US deal volume to be off slightly this year, primarily because of the interest rate increases that are leading to recalculations of the economics of deals in progress, and because the uncertainty on government policy as we start the year may constrain deal closings in the first part of the year,” Muoio continues to tell GlobeSt.com. “I do not think Dallas is immune to those macro effects, however the local economy is strong and generating good fundamentals in most property segments, and that should keep investors interested in the market. Also, with oil stabilized and up some from its lows, and with energy producers having adjusted to lower prices, we think the worst of the impact from low oil is behind us. As investors respond to this, Dallas and the rest of Texas will possibly become more of a focus again, driving investment sales.”

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DALLAS—The long-term multifamily forecast reveals the sector remains strong after years of booming growth, but now may be primed for a slowdown after far surpassing its prior cyclical peak, according to Ten-X's latest US apartment market outlook. The outlook also includes the top five buy markets for multifamily real estate assets.

Ten-X indicates Sacramento, Las Vegas, Atlanta, Phoenix and Dallas are the top markets in which investors should consider buying multifamily assets. These regions are being fueled by robust local economies, with a steady influx of new jobs attracting residents still eager to forgo homeownership for the opportunity to rent in a large metropolis.

Employment in Dallas is at an all-time peak following 3.7% growth during the last year, while unemployment sits at 3.5%–more than 100 bps lower than the national rate, says Ten-X. Strong population growth bodes well for the city's economic prospects and has driven multifamily vacancies to a cycle-low of 4.2%. Rents are also measuring the best growth of the cycle and Ten-X projects landlords can expect returns of roughly 4.5% through 2018.

“Dallas investment sales activity outperformed that of the US in 2016. Total deal volume was up 2.2%, making it the second consecutive year with transactions totaling above $20 billion and the third record year in a row. This is compared to the 10% decline in total US sales volume,” Ten-X chief economist Peter Muoio tells GlobeSt.com. “However, the totals mask some important differences among property segments. Office and apartment investment sales were the stars of the show. Office deal volume surged 46.5% in 2016, to over $6 billion, eclipsing the previous record from 2006. This contrasted with the 5.8% US decline in office deals. Apartment transaction flow in Dallas was up 12.4%, besting the 3.2% US increase. However, industrial, retail and hospitality underperformed the US volume figures. It is no surprise that industrial underperformed, since this is the one property segment in Dallas feeling the impact of low oil.”

The Ten-X research report observes that a record 260,000 completions were reported in 2016, with another roughly 250,000 expected to arrive this year. While absorption remains strong, this massive infusion of supply will drive vacancies as high as 5.6% during the course of 2017 before climbing above 6% during a modeled cyclical downturn beginning in 2019.

Ten-X also notes that homeownership, which has been declining sharply for years, has begun to show signs of stabilization. While demand for apartments should remain largely unaffected, absorption rates could slow should the trend begin to gain steam. Overall economic indicators, including steady employment growth and rising wages, may provide a boost to the market for millennials saddled with student debt by pushing them out of parents' homes and into the rental market.

“For years, the multifamily sector has been reveling in the spoils of a massive cultural shift toward urbanization and falling homeownership. As Americans continue to move to certain major cities in droves, developers have responded by making huge investments in those areas, flooding the market with new apartments,” said Muoio. “While many larger metros appear to have reached a critical mass of supply and are now seeing fundamentals begin to cool, a strong economy and more limited development continue to make multifamily an attractive bet for investors across the country.”

The mild uptick has already begun to slow rent growth, as evidenced by a 0.7% seasonally adjusted increase in the third quarter–the slowest quarterly gain since 2013. Ten-X research predicts rents will continue to grow by roughly 3% per year until 2018, before leveling off to roughly 1% gains in the two-year modeled downturn.

“Looking ahead, we expect US deal volume to be off slightly this year, primarily because of the interest rate increases that are leading to recalculations of the economics of deals in progress, and because the uncertainty on government policy as we start the year may constrain deal closings in the first part of the year,” Muoio continues to tell GlobeSt.com. “I do not think Dallas is immune to those macro effects, however the local economy is strong and generating good fundamentals in most property segments, and that should keep investors interested in the market. Also, with oil stabilized and up some from its lows, and with energy producers having adjusted to lower prices, we think the worst of the impact from low oil is behind us. As investors respond to this, Dallas and the rest of Texas will possibly become more of a focus again, driving investment sales.”