Dallas Morning News - Dallas, Texas - The new Arts Apartments in downtown Dallas have been open since April, and 60 percent of the units are already rented.

"Our lease-up [rate] has been incredible in the last three months, and we are moving our rents higher," said Brad Taylor of JPI, which built the 228-unit project on Ross Avenue.

The Arts District isn't the only place experiencing stronger-than-expected leasing. A rebounding local economy is causing a boom in North Texas' apartment renting.

Net apartment leasing in Dallas-Fort Worth apartments topped 9,400 units in the second quarter, according to the latest estimate by analysts at MPF Research.

So far in 2010, apartment occupancy in the D-FW area has jumped by more than 15,000 units, the best performance in five years.

The jump is indisputable evidence of a comeback in North Texas' economy, analysts say.

"I don't think you can get this demand unless you are creating significant jobs," said Greg Willett, MPF Research vice president. "New households are being created at a pretty rapid pace, so apartment demand is gaining considerable momentum.

"Some of the people who had taken roommates are moving out on their own," he said, "and some people who had been renting single-family homes and condos are coming back to apartments."

Also, young renters who had moved in with their parents when the economy tanked may now be leaving again, he said. Some renters have sold homes and are waiting to buy.

Overall area apartment vacancy has fallen to close to 9 percent.

"Everything in the apartment market is looking significantly better," Willett said.

Oversupply fears

A year ago, there were worries about a huge oversupply of North Texas apartments. D-FW still leads the country in apartment building, with almost 7,000 new units in the pipeline.

But a surge in demand from renters has made for a more upbeat outlook. There is even talk of an apartment shortage in some markets in a couple of years.

Developers who have just opened several large rental communities say tenant demand is stronger than expected.

"The two properties we have in the Dallas area that are in lease-up have been maintaining a steady velocity – healthier than one might expect when you listen to the economic news," said Mark Culwell, senior vice president of developer UDR.

UDR's new Belmont apartment community in East Dallas is close to 70 percent leased. And its Vitruvian Park complex, which opened a few months ago in Addison, is more than 50 percent rented.

The developer recently began work on another 352 units in Addison, one of the few projects started this year.

"If this leasing activity is sustainable, you will see a return to pricing power on the part of owners," Culwell said.

Average rents in the D-FW area began to inch up during the second quarter and are likely to go higher, MPF Research predicts.

"Apartment operators usually take a while to figure out things are coming back, but they are really aware of the improvements in the market," Willett said.

Average rents in the D-FW area were $749 at the end of June – up $10 from March.

Economists are taking notice of the strong rental market numbers.

D'Ann Petersen, a business economist at the Federal Reserve Bank of Dallas, said the latest apartment data shows that "the local economy is heading in the right direction at pretty good pace."

At the end of May, employment in the D-FW area gained 3,400 jobs from a year earlier – the first such increase since the economic crash.

The local job base may be growing even faster than that.

Employment analysts are "notorious for having to make dramatic changes in their numbers," said James Gaines, an economist with the Real Estate Center at Texas A&M University. "The economy might be recovering more quickly and quantitatively better than the current statistics are showing."

Gaines agrees that North Texas could face an apartment shortage in some markets if current demand continues and construction remains low.

"The inventory of new apartments is going to be held down for two or three years," he said. "A year or two from now, the lack of building will make a good market for apartment owners."

Willett doesn't expect apartment construction to rebound quickly, even if the market gets tight.

"You could see development start to trickle back in late next year," he said. "Our starts in 2012 probably will be huge."

Money worries persist

Apartment builders are dusting off plans but say it's still tough to find the money to begin projects.

"We are out looking for funding on some deals now that we are trying to start" in Uptown and Las Colinas, said Tom Bakewell of Gables Residential. "The question is when will construction financing be available?"

Bakewell agrees that the apartment market has turned the corner.

"Back in January, we were still dropping our rents on lease renewals," he said. "In May, we were giving rent increases, and people were staying and taking it."

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