Dallas-Fort Worth Multi-Family Real Estate Investment Market
The Dallas Multi Family Real Estate Market by the Numbers
- The Dallas-Fort Worth multi family home and apartment market set multiple performance records in 2021.
- Demand for Dallas multi family homes surged, roughly double pre-pandemic norms, due to pent-up demand post-pandemic.
- Absorption has continued to rise and rents have accelerated, establishing a new high benchmark for growth.
- Vacancy remains relatively low through 2022, keeping rent growth well above pre-pandemic norms.
Dallas Multi Family Real Estate Growth Trends
Despite this wave of absorption, the pace of development in DFW remains flat. Permitting dropped in 2020 due to the initial impact of the pandemic but more recently has rebounded closer to pre-COVID levels over the past 12 months. While developers continue to build new multifamily projects, they remain under pressure due to supply chain constraints, undercutting their ability to source materials and labor and these are leading to longer construction timelines. Most construction is concentrated in the north in Collin and Denton counties.
All in all, robust economic underpinnings have made DFW one of the best cities for multi family investing.
Dallas Growth and Migration Trends
Dallas, TX and nearby Fort Worth lead the country in recovery from the pandemic and resulting recession, up 175,000 jobs from pre-pandemic levels. Continuous in-migration of one new resident every 3.3 minutes plus vigorous job growth are two primary drivers of apartment demand in the metroplex. In terms of demographic growth, the area led the country in population growth, adding 97,000 new residents from 2020 to 2021.
Even with a continuous flow of new properties coming to the market, the renter pool continues to absorb new units. Since 2010, the market has added about 200,000 new multifamily units, growing its inventory by 33%, the most among major markets in the country. Continuous supply and leading absorption levels make Dallas-Fort Worth one of the country's fastest-growing and balanced multifamily markets.
Greater Dallas Multi Family Real Estate Investment Trends
The greater Dallas, TX market also remains a leader for total sales volume in the country over the past two years, following a broader trend of investors descending on sunbelt markets amid economic uncertainty. Most deals are found in value-add opportunities, with the Mid-Cities and older sections of the MSA such as East Dallas as active areas for investment. Meanwhile, core investors often target areas with amenity-rich assets within urban areas like Uptown.
Absorption levels here led the country last year, a trend that predates the recession. As a result, with fewer market deliveries, overall vacancy and stabilized vacancy rates have compressed to their lowest point on record. Through late summer 2022, the overall share of available units on the market remains below pre-pandemic norms, keeping pricing power in the hands of owners/landlords.
Stabilized vacancy rates remain below pre-COVID averages for all submarkets in DFW. Renters continue to flock to high-quality suburban destinations in Collin County such as Plano, Allen/McKinney, and Frisco; despite continued development activity in these areas, the threat to vacancy rates remains minimal as occupancy rates remain essentially full.
Meanwhile, vacancy rates in value-forward suburbs such as Arlington, Garland/Rowlett, North Richland Hills, and Mesquite remain below the market average. Renter demand for urban living rebounded in Downtown Dallas and Uptown, pushing vacancy rates below their 20-year norms because the metroplex remains a target for corporate relocations and expansions.
Dallas, TX Growth and Employment Trends
DFW ranks as one of the top metros for nominal employment growth in the past decade, adding an average of 100,000 jobs annually, before the pandemic-driven recession and added about 20,000 people in the 20- to 34-year-old demographic annually, one of the highest marks in the country. New residents are less likely to purchase a home until they identify neighborhoods they prefer, leading many to rent initially.
The single-family market remains a dominant choice in Dallas-Fort Worth. Demand has outstripped supply of for-sale housing, leading to a hyper-competitive housing market, particularly among renters seeking to enter homeownership. Most recently, the rising interest rate environment is expected to keep renter retention and demand elevated. Nevertheless, the single-family housing market will continue to attract those who prefer to own rather than rent at the same price. This is especially true in suburban areas like Frisco and Allen/McKinney, where land is still plentiful and single-family subdivisions can sprout quickly.
Dallas Multi Family Real Estate Rental Rate Trends
As of mid-2022, the pace of rent growth is beginning to soften, but is still trending well above pre-COVID norms. 4 & 5 Star properties are declining the fastest; these properties led an aggressive run-up in growth last year. Prior to the recession, annual rent growth trended between 2% and 3% over the past decade. Rent growth set a new record in 2021, like many major markets last year. Across the market, rent growth is pervasive with about half of all submarkets registering double-digit growth. The growth is most substantial in fast-growing submarkets like Collin (north) and Tarrant (west) counties. Meanwhile, urban submarkets like Downtown and Uptown demonstrated a rapid rebound in rent growth.
Rent growth is returning to expensive areas, including Downtown Dallas, Uptown, and West Dallas. Asking rents in Downtown and Uptown collectively are up above 10% since the end of last year. Similarly, apartment owners and operators in supply-heavy northern suburban submarkets like Plano, Frisco, and Allen/McKinney can realize improving rent growth as demand for new units in these areas remains impressive and a flattening development pipeline.
The highest rents are found in Uptown and Downtown with average rents north of $2,000. High-quality suburban locations report average market rents between $1,600 to $1,900, closing in on averages found in the urban core. Mid-Cities and older Dallas suburbs are areas where rent growth is most consistent. Arlington, North Richland Hills/Haltom City, and Hurst/Euless/Bedford have seen rent growth above the metro average for a few years now, thanks to rock-bottom vacancies and a slew of value-add renovations. Those areas are joined by close-in, older Dallas suburban submarkets like Garland and Mesquite, which share a similar 3-Star-heavy inventory.
While neither the Mid-Cities nor the older Dallas suburbs are seeing the type of office-using job growth in Uptown or the northern suburbs, the expected lack of supply and blue-collar job growth stemming from the region’s booming industrial sector should keep vacancy rates low and rent growth high.
Multi Family Construction Trends in Dallas, TX
The construction pace in Dallas-Fort Worth has remained relatively flat for the past two years. Permitting activity is rebounding slowly however, leading to leaner construction starts. While rising permitting activity is encouraging, developers continue to struggle with supply chain bottlenecks, inflationary pressures and construction material availability. Over the past decade, the volume of multifamily permits and construction starts have generally run in tandem.
Frisco/Prosper has reported more construction starts in the past year, responding to population growth and in-migration in northern Collin and Denton counties. The area represents the leading edge of demographic growth, and developers are adding more projects in budding communities including Little Elm and Prosper.
Apartment developers have been present in virtually every corner of the metroplex over the past decade but the Downtown Dallas and Uptown/Park Cities submarkets have added an outsized amount of new inventory over the past 10 years. Nevertheless, construction has spread to more urban-adjacent up-and-coming areas surrounding the CBD, including West Dallas, Northwest Dallas, East Dallas, and Oak Cliff, with thousands of units underway.
Looking ahead, however, supply has likely crested in these areas making it one of the best cities for multi family investing. In 22Q2, 4,800 units were under construction within a 4-mile radius of Downtown Dallas—down from roughly 9,000 units in 2016. AMLI at Fountain Place is one marquee project downtown.The 47-story, 367-unit tower adjacent to Fountain Place, the iconic office tower developed by I.M. Pei, has redefined the Downtown Dallas skyline and is among a small cohort of properties that now command asking rents above $3/SF.
DFW's center of gravity has shifted north. Northern suburbs like Collin County have enjoyed some of the fastest population growth in the country. The sheer number of people and companies looking to move into Plano, Frisco, Allen, and McKinney should keep demand healthy. That growth has spilled over into sections of Denton and Tarrant counties, as well. With few natural barriers to supply, lenders, and municipalities that are generally cooperative, new supply often pops up quickly.
These economic and demographic anchors will give developers plenty of reasons to keep building, especially with the North Platinum Corridor in Frisco set to attract more corporate tenants well after the current recession.
Dallas Multi Family Investing Forcast
DFW will maintain the #1 spot for apartment investment through 2022, a ranking held since 2020.
Over that period, investors have shifted their focus to Sun Belt markets as coastal markets recover from the economic downturn more slowly. The area has benefitted from greater investor interest from institutional owners and out-of-state buyers thanks to record-setting demand and rent growth.
Increased competition for multifamily assets over other classic commercial product categories such as office and retail have elevated average market pricing about 15% over the past year. With this run-up in appreciation, some investors are looking at burgeoning communities on the suburban fringe as other investors have become priced out. Interest rate hikes executed by the federal reserve to combat persistent inflation are increasing the price of debt and will weigh on investors' ability to execute deals.
Nevertheless, multifamily assets serve as a hedge against inflation and are relatively well positioned due to structural advantages like relatively short lease terms and continued rent growth that will drive NOI.
Investors remain bullish on northern suburbs like Plano and Flower Mound. In September 2021, Avalon Bay purchased The Nexus Lakeside community in Flower Mound for $117 million, or $275,294/unit. The 4-Star, 475-unit community was completed in 2014 and fetches asking rents of $1.90/SF. This is Avalon Bay's first entrance into the market as the REIT typically targets expensive, higher-barrier markets on the coasts.
In 2010 investors began to be priced out of core coastal metros such as New York and San Francisco. They pursued opportunities in the developed, interior markets like Dallas-Fort Worth, Nashville, Charlotte, and Atlanta attracted to robust economic and demographic drivers, low cost of entry, and solid multifamily fundamentals. Value-add plays are popular, and submarkets with a high concentration of 1980s-era stock continue to see plenty of sales activity making them among the best cities for multi family investing.
Dallas-Fort Worth Multi Family Investment Portfolio Properties
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