The Dallas-Fort Worth Metroplex is a case study in the current trends of the multifamily real estate market. While some numbers, including demand for rental housing and vacancy rates have softened in recent months, there is much to be excited about in the DFW area. In this overview, we’ll take a closer look at some of the statistics and trends investors will find noteworthy, and how they might inform future investment decisions.
The DFW area led the country in demand for rental units in 2021, with people moving into the region due to a number of reasons. Though vacancy rates are not as high as they were last year, they continue to remain stable. Places seeing ongoing demand for apartment rental units include:
Trends in the first three cities underscore the continued population growth throughout Collin county, and renewed interest among renters in the Downtown Dallas area have driven vacancy rates to a 20-year low.
The need for apartment rental units in the DFW area can be traced back to a few key factors. With demand for single-family homes outstripping the current supply, many would-be homebuyers have made the decision to continue renting. Job growth in the Dallas-Fort Worth and surrounding areas has also brought more job-seekers to the area, and with them, the need for more access to rental units. Overall, the forecast for vacancy rates from 2022-2026 is expected to remain stable at around 9 percent. This is good news for those looking to invest in multifamily real estate properties throughout DFW.
Of course, favorable vacancy rates aren’t the only thing driving the DFW multifamily real estate market. Healthy rent growth means reliable cash flow for investment properties, and the DFW region continues to trend higher than pre-recession rates. While rents have softened a bit in the last year, areas including Downtown and Uptown have risen approximately 10% since the end of last year. Suburban cities continue to see rent growth along with low vacancy rates as a result of population growth and job opportunities in the area. It’s important to note that while rents continue to increase, Dallas-Fort Worth still remains competitive with other metropolitan areas with lower overall rent costs when compared to the national average. For reference, the average rental rate for a two-bedroom in and around DFW was around $1,600 in 2022.
Overall, 4-star and 5-star properties have seen declines in rent growth, but 3-star properties appealing to more of a blue-collar demographic continue to see steady growth. Luxury apartments may have plateaued, but the outlook for both office and industrial sector jobs will play into the ongoing need for rental units and help foster continued rent growth.
New construction projects for multifamily housing slowed during the pandemic due to supply chain issues and other factors relating to the COVID-19 crisis, and recent inflation rates present an ongoing challenge. However, the levels of new construction projects have begun to increase in select Dallas-Fort Worth submarkets. Collin, Tarrant, and Denton counties continue to see growth as the population in those areas increases, and the Downtown Dallas city center has seen the addition of 4,800 units to its available inventory in the 2nd quarter of 2022.
Several 3, 4, and 5-star projects are slated for completion throughout 2023 and 2024, most of which consist of 300-500 individual units. These additional multifamily rental units throughout DFW may provide an alternative for would-be homebuyers unable to find suitable homes for sale in the highly competitive single-family home market.
Every market analysis should look at the trends of real estate sales in a given area. For Dallas-Fort Worth,the region remains one of the most desirable for investors. The demand for units combined with the healthy rent growth rates make the area prime for real estate investment, both among major alternative investment management companies like Blackstone and smaller investors. The average price per unit sold over the last 12 months in the DFW area is estimated at approximately $217,000, with the average property purchase price coming in at about $53.4 million. With favorable cap rates and the average vacancy rate at the time of sale hovering around 6.9%, real estate in the DFW area can provide a hedge against inflation and provide consistent cash flow to diversify investment portfolios.
Sales of 3, 4, and 5-star properties over the last year range from new construction projects completed in 2022 to older buildings built in the 1980s and 1990s, providing a mix of options for investors to consider. On average, these properties contained around 190 units, creating continued cash flowing opportunities while meeting the increased demands for housing in the area.
The DFW area has seen robust job growth, leading to a healthy economy and an increase in population throughout the region. Currently, the population sits at approximately 7.9 million and is forecasted to grow by an additional 1.4%. This increase in the community’s overall size may help continue demand for affordable rental units, and as discussed above, new construction projects as well as renovations can contribute to meeting these demands.
A skilled labor force and lower business costs make Dallas-Fort Worth attractive to companies looking to relocate or expand. All these factors have combined in the last few years, resulting in a total of 4 million jobs and a low unemployment rate of 4.5%. Some notable businesses looking to increase their presence in DFW include AT&T, JP Morgan Chase, and USAA. Some of the industries expected to continue adding jobs include:
The wide range of job availability and diverse workforce make Dallas Fort-Worth ideal for both businesses and residents, and may also contribute to a healthy real estate market in the coming years.
While DFW is seeing strong growth, real estate investors will want to pay close attention to the sub-markets throughout the area when looking for future investment opportunities. The diverse population also means a diverse selection of smaller communities in Dallas-Fort Worth to consider. Some may be much smaller than the downtown city centers, but changes in population and job availability may mean these tiny communities have room for future growth. Some notable sub-markets we’ve targeted in our research include the following:
Of course, it’s important to remember the growth in other areas, such as Plano and Allen/McKinney, which have seen favorable vacancy rates and increased population growth. Vacancies and effective rents are key components when examining the possibilities in any area of Dallas-Fort Worth.
The overall outlook for Dallas-Fort Worth remains positive, with effective rents at a desirable level and vacancy rates continuing to remain low. An influx of new residents and increased job opportunities throughout the region is supported by a number of businesses either moving or expanding. REITs see continued opportunities for asset acquisition and improvements, providing investors like you with an opportunity to expand their portfolios and create a long-term strategy for building wealth through the Dallas-Fort Worth real estate market.
Current DiversyFund properties in the Dallas-Fort Worth Metroplex are Cobble Hill and Village Creek Apartment Homes, both located in the Fort Worth submarket.
*The information in this document is sourced from a CoStar market report dated 10/28/22