Transit Study Confirms Urban Core Apartment Rent Premium

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Transit Study Confirms Urban Core Apartment Rent Premium

Cost Near Downtown Dallas Stations the Highest

By Carl Whitaker | Thursday, January 26, 2017

Anyone who has attended a multifamily conference over the past few years has probably noticed at least one session discussing transit-oriented development (TOD). One can safely say there has been an increasing amount of multifamily development leveraging nearby transit stations in recent years.

The outsider’s perspective of Dallas is that the city is well known for its sprawl, an urban configuration not exactly conducive to public transportation. Although Dallas is a sprawled metro area (the Dallas Area Rapid Transit (DART) light rail system totals 90 miles, according to the agency), DART’s light rail system is one of the most frequented systems in the nation, with a reported 29.9 million passenger trips in FY 2015.

Axiometrics’ apartment data supports the idea that monthly rents tend to be higher in urban core locations than non-urban core locations (i.e. suburban, outer-urban, exurban, etc.) Urban core apartments are likely closer to major employment nodes and are located in areas without large swaths of developable land and nearby the array of amenities that downtowns tend to offer. In short, these and a handful of other variables drive up demand for urban-core locations and, therefore, rental rates.

While the DART light-rail system services a much larger area than just the urban core of Dallas, the major artery of the overall system runs through the urban core. As such, Axiometrics analyzed rental rates for apartments near DART rail stations to test the hypothesis that urban core apartments tend to achieve higher rental rates.

The methodology for this analysis uses a one-mile ring from each of the 62 DART light rail stations (43 of which had Axiometrics-tracked properties within one mile). The monthly rent for apartments within this one-mile ring were then averaged (using a weighted average based on the total number of units) to discover what rent near these stations is.

DART Light-Rail LInes

DART Transit-Oriented Development

The urban core hypothesis certainly holds true when looking at the average rental rates for properties near the Victory ($1,857), West End ($1,751), Akard ($1,682), Union ($1,661) and St. Paul ($1,655) stations. These five stations are all located in the heart of what is considered Dallas’ urban core.

Apartment Data DART Downtown

Apartments near the CityPlace/Uptown station, on the fringe of the Urban Core, achieve the sixth highest average rental rates at $1,673 a month. Pearl/Arts District ($1,639), Convention Center ($1,576), Fair Park ($1,619), and Cedars ($1,471) round out the top 10 stations. Of these stations, one could argue that only Fair Park is not in the heart of Dallas’ urban core.

Without the context of rental rates around other stations, these urban core rent premiums may not seem special, which means a quick contextualization is worthwhile. Of the aforementioned 10 stations (with the exclusion of Fair Park), the average rent is $1,679, according to apartment market research. Taking the average of the 34 stations not located in the urban core, rent drops about $500 to $1,180.

Apartment Market Research Heatmap

Another way of analyzing the premium for urban core apartments can be achieved by running three-, five- and 10-mile concentric rings from the heart of the Dallas urban core (simplified for the sake of this analysis by using the halfway point between the Akard and St. Paul stations). If a property was included in the three-mile ring, it was excluded from the five- and 10-mile analysis; if a property was included in the five-mile ring, it was excluded from the 10-mile analysis, etc.

Within a three-mile ring, the average rent for apartments is $1,632 – not terribly far from our original $1,679. But rents begin to show a substantial drop beyond that. The five-mile ring average rent was $1,281 (if excluding apartments in the three-mile ring). Following this trend is the 10-mile ring, in which the average rent was $1,026.

Effective rent growth trends also prove interesting in this particular analysis. Properties near the same nine stations from earlier (Victory, West End, Akard, Union, St. Paul, CityPlace/Uptown, Pearl/Arts District, Convention Center and Cedars) achieved 0.8% annual effective rent growth. The remaining 34 stations averaged an effective rent growth of 3.0%.

Apartment Data Rent Growth Heatmap

One reason rent growth in the urban core is lower is due to the higher rent base. For instance, raising rents 5% for a property with an average rent of $1,000 will result in a new rent of $1,050. Raising rents 5% for a property with an average rent of $1,500, however, will result in a new rent of $1,575, or a $300-per-year increase. Essentially the pricier location becomes even more pricy due to its already large rent base.

Another reason urban-core rent growth underperforms the suburbs is the changing demographic trends in suburban areas. It is no secret that job growth is a primary driver for apartment market fundamentals, and the job growth occurring in northern Dallas suburbs serviced by the DART light rail (particularly, the CityLine development in Richardson) has been staggering.

Regarding the CityLine development, the impact that job growth has on surrounding locations is apparent in Axiometrics rental data. There are three stations near the CityLine development (CityLine/Bush Turnpike station with a station at the development, Downtown Plano station approximately two miles to the north and Galatyn Park station 1-1/2 miles to the south), all of which had average rent growth numbers above 5%.

Properties near the CityLine/Bush Turnpike station averaged 5% rent growth. This is especially impressive considering the $1,430 rent is the third highest for non-urban core stations in this analysis.

Carl Whitaker

Carl Whitaker

Real Estate Analyst

Carl Whitaker is a Real Estate Analyst for Axiometrics.

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