Supply Glut Forces MF Stats Downward

MPF vice president of research Greg Willett tells GlobeSt.com that oversupply continues to be a problem, with more than 12,600 units coming on line within the past three months. This brings the area total to 420,800 units – so far.

If there is any bright spot in the scenario, Willett notes, it's construction starts have all but disappeared. The problem, however, is that there is still a lot left to come. Willett says the backlog stands at between 12 and 18 months of supply.

"It will definitely get worse before it gets better," Willett says. "The economy is losing steam pretty quickly in Dallas and we have more product on the way. With the poor economy, I'm afraid there is no way out."

Associate partner Jay Gunn with Hendricks & Partners' Dallas office agrees that there is still too much construction out there with little demand or absorption in the near term to swallow the excess units. And, like Willett, Gunn believes that it will take anywhere between a year to a year and a half before everything is filtered through.

At the same time, "a lot of that new construction has been concentrated in the downtown, uptown and Oak Lawn submarkets," Gunn tells GlobeSt.com. "While we're seeing softness in other submarkets, some are doing better than others. There are those that hadn't been saturated with new construction."

And surprisingly, despite everything, concessions haven't exactly skyrocketed, either. Though MFP's figures show 48% of the Dallas product averaging a 9% discount, Gunn comments that this isn't exactly news.

"Depending on the submarket, concessions range between 4%-8%," he remarks. "We've been motoring along with those concession numbers for quite some time."

The owners that are going to plow through the next year and a half successfully, Gunn continues, are those who are well-capitalized, with long-term debt in place, that will stay in place for at least the next year to three years. "2006-2007 acquisitions are going to go through problems, especially those with a five-year note," he adds. "If they have a 10-year-note, with cash, they'll likely struggle through."