DALLAS MULTIFAMILY MARKET REPORT: QUARTER 1 2022

The multifamily market in Dallas saw strong momentum at the start of 2022 with record leasing activity, rent growth, and investment during the first quarter. Investment in the multifamily sector increased by 56 percent year-over-year to $63 billion in Q1 2022, the strongest first quarter on record and bringing the trailing four-quarter total to $374 billion.

 

The Dallas metro was especially active in apartment deals. The area led the country in first quarter apartment sales, with more than $29.2 billion changing hands between January and March of this year, more than double the amount sold the year before.

 

Multifamily accounted for 37 percent of total commercial real estate investment volume in Q1 2022, followed by office at 21 percent and industrial at 20 percent. The multifamily market set a record four-quarter absorption total of 695,100 units in Q1 2022, up 12 percent from the previous quarter and 77 percent higher than the previous annual record of 393,000 units in 2000. Net absorption of 96,500 units was the highest Q1 2022 total since 2000.

 

The overall multifamily vacancy rate fell by 20 basis points quarter-over-quarter and 2.5 percentage points year-over-year to a record-low 2.3 percent. Average net effective rent increased by 15.5 percent year-over-year to $2,007 per month.

 

Over the past four quarters, Dallas-Fort Worth was No.1 in the nation in multifamily investments. The region saw $29.2 billion in total volume, accounting for 7.8% of the U.S. total. The Dallas-Fort Worth region saw net absorption at 4,600 during the first quarter and 35,200 across the past four quarters, making it the No. 3 market in the U.S. in that metric, behind Houston and ahead of Austin.

 

The vacancy rate in the Dallas-Fort Worth multifamily market continued to tighten during the first quarter, falling to just 2.7 percent. The rate has been cut in half in the past year. This rapid decline in vacancy has allowed operators to implement healthy rent gains during renewals or as units become available to new renters.

 

The vacancy has tightened even as developers have been active in bringing new projects to the market. Since the beginning of last year, absorption has outpaced deliveries by 70 percent, and in the first quarter, absorption was 30 percent higher than the number of units that came online. 

 

This supply-demand imbalance, particularly in an environment where there is a limited number of available units, is giving operators the upper hand in setting rental rates. The pace of year-over-year rent growth totaled nearly 20 percent in the first quarter, and additional gains are expected through the remainder of this year.

 

Investors continue to compete to acquire multifamily properties in the Dallas-Fort Worth area. Metroplex has led the country in apartment investment sales volume in each of the past six years with 2021 marking a new high for area transaction volume. The momentum carried over into 2022; during the first quarter, the pace of sales velocity was up nearly 80 percent when compared to levels from the first few months of last year. 

 

Cap rates compressed throughout 2021 but showed signs of leveling off during the first quarter, with the bulk of the properties generally trading with cap rates around 3.5 percent. Prices have pushed higher in 2022 even as cap rates have stabilized, highlighting the impact of rent spikes and extremely low vacancy rates on property performance.

 

In the coming months, area multifamily properties are expected to continue to change hands, although there could be a period of price discovery as investors adjust to rising interest rates.

 

 

RENTS

• The extremely tight occupancy conditions are supporting rapid rent growth in the Dallas-Fort Worth Metroplex. Rents rose 3.5 percent in the first quarter, reaching $1,434 per month. Rents have spiked 19.8 percent in the past 12 months.
• Average rents reached $1.63 per square foot, per month, up from $1.37 per square foot, per month one year ago. In Class A properties, rents reached $1.96 per square foot, per month, up 18.1 percent in the past year. The surge in Class A rents is expected to continue to support new construction throughout the market.
• Rent growth was fairly consistent across most submarkets in the Dallas-Fort Worth region. In the Dallas-Plano-Irving segment of the market, rents reached $1,470 per month, up 20 percent year over year. In Fort Worth-Arlington, rents ended the first quarter at $1,324 per month, up 18.4 percent year over year.

 

EMPLOYMENT

• Employers in the Dallas-Fort Worth market continue to add workers at an accelerating pace. Year over year, total employment in the region has expanded by 6.8 percent with the addition of more than 256,000 jobs. During the first quarter, more than 60,000 new jobs were created.
• Professional employment in Dallas-Fort Worth has been expanding for the past several years, and the pace of growth has been escalating as businesses have continued to relocate to the region. In the 12-month period ending in the first quarter, local professional employment spiked by nearly 10 percent with the addition of approximately 65,000 jobs.
• The region’s large transportation and distribution industry continues to expand at a rapid pace. In the past year, nearly 40,000 distribution jobs have been added, a 9 percent gain. Additional growth is on the way; there are more than 100 warehouse and distribution projects currently under construction, totaling more than 45 million square feet across Dallas-Fort Worth. 

 

SUPPLY

• Of the 24 leading markets for new supply, Dallas was among those that had total inventory growth of more than 3.5%. No markets appeared at risk of overbuilding
• Dallas-Fort Worth set the yardstick for stock expansion, with developers bringing online 24,635 units in 2021, the highest among all metros in the country. Over half of these were in North Dallas (12,973 units), followed by Fort Worth (7,640 units) and suburban Dallas (4,455 units). Interestingly, the metro has been on a slow but steady downward trend since 2019, when 28,316 units came online.
• The metro’s remarkable demand for rentals has kept developers concentrated on the Lifestyle segment, which developed by 24,260 units in 2021. Meanwhile, the Renter-by-Necessity segment grew by just 808 units, 415 of which were in fully affordable communities.

 

POPULATION

• About 1222,897 residents were gained in Dallas-Fort Worth in 2020, for a 1.6% demographic expansion, four times the 0.4% U.S. average and above 2019’s 1.4% rate.
• Metroplex’s population had an increase of  20.4% in the past decade, well above the 6.5% U.S. rate during the period.

 

The outlook for the Dallas-Fort Worth multifamily market continues to improve, as the market posts one quarter after another of robust property performance. Demand for rentals is expected to remain elevated through the remainder of the year, fueled by ongoing gains in the local labor market. Absorption has outpaced deliveries of new units in each of the past four quarters.

 

This trend could continue in the coming quarters, although with vacancy at record lows, there are fewer vacant units for renters to occupy. Developers are increasing activity; the number of projects that are under construction is on the rise, but the pace of deliveries is not forecast to increase appreciably until 2023 at the earliest. As a result, vacancies are expected to remain low, and operators should have the upper hand when negotiating rent increases. 

 

 

As informed investors we should understand the risks associated with real estate investing and that there is no guarantee. Please do your due diligence.