North Texas apartment leasing remained strong in the most recent quarter.Thank you for reading this post, don't forget to subscribe!
But even the substantial leasing volume was not enough to sustain the thousands of new units opening in Dallas-Fort Worth.
“What we’re seeing in D-FW’s apartment market right now mirrors what’s happening in most of the country,” said Jay Parsons, chief economist at Richardson-based RealPage. “There is a lot of demand for apartments, but the supply of new apartments is even greater.”
Read more D-FW real estate news
D-FW Real Estate News
During the third quarter, net apartment leasing in North Texas totaled 7,247 units – the best of any U.S. market. But that fell short of the 8,170 apartments completed in the same period, according to RealPage.
More than 25,000 new rental units are expected to come to the D-FW market this year.
“D-FW ranked No. 1 in the nation in total construction and No. 1 in demand in the third quarter,” Parsons said. “Over the next 15 months, we will likely continue to see more supply than demand – even in a high-demand market like D-FW – and that means more choice for tenants and higher rents by 2024. Discounts will continue to be available. ,
RealPage found that D-FW apartment rents have declined about 1% from a year ago. In the third quarter, the average rent was $1,592 per month.
Apartment vacancy rose to 6.7% – about one and a half percentage points higher than the same three-month period a year earlier.
“Occupancy rates have dropped, and in turn, property managers are beginning to cut rents to fill units and retain residents,” Parsons said.
With high construction financing costs and soft rents, builders in D-FW and across the country are cutting back. Nevertheless, more than 72,000 apartments are under construction in North Texas.
“New construction starts are down 45% year to date compared to the same time in 2022 – this reflects a trend we are seeing across the country right now,” Parsons said.
The current building peak is what Parsons sees as “the generational height of the 1970s and not something we’ll see again for decades.”
Apartment supply in North Texas will remain high for some time, said Greg Willett, national director of research for Institutional Property Advisors.
“Although there has been a large decline in construction in recent months, the volume of apartment product already on the way points to much higher completions by mid-2025,” Willett said. “Continued job growth should create greater demand for apartments, with overall occupancy partly helped by lower than usual levels of tenant losses, now that the cost premium to buy is at record levels.
“Vacancy rates are likely to rise slightly above the previous average, but not reach unhealthy levels,” he said. “Fare growth will likely be sluggish, but there is still a possibility that pricing should increase slightly.”
The top D-FW apartment building markets are in the northern suburbs. Approximately 11,000 rental units are under construction in Allen and McKinney. Another 8,200 units are on the way in Frisco.
“So much of the construction has moved to the outer suburbs on the north, west and south sides of the metro,” Willett said. “Nearby suburbs appear poised to remain filled and record some solid rent growth.”
Apartment builders are confident that any oversupply will be short-lived given the growth in Texas.
“2024 is probably going to be a sluggish year because of supply,” said Rick Campeau, CEO of Houston-based Camden Property Trust. “But when you look at ’25 and ’26, you’re going to see new deliveries fall off a big cliff.
“You have a housing shortage today, and you’re going to have a huge housing shortage in 2025 and 2026,” Campeau said at a meeting of the National Association of Business Economics in Dallas last week.
Nationwide apartment completions are likely down from a peak of about half a million units, Campo said.
“There’s probably going to be 220,000 starts in 2024,” he said. “We think starts in 2024 will likely peak at levels we haven’t seen since the great financial crisis of 2007 and 2008.”
Apartments have started depreciating by more than 40% this year due to high interest rates and construction costs.
“Rents have started to drop,” said Campo. “They’re going to go up again in ’25 and ’26. You’re going to have a housing shortage. We continue to underbuild.