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Dallas-Fort Worth Leads Nation In Multifamily Investment For Fourth Consecutive Quarter

Investors continue to sink money into Dallas-Fort Worth’s multifamily market despite rising interest rates and the looming threat of recession.

Apartment developers can't keep up with demand for new units in DFW.

Multifamily investment volume landed at $29.2B at the close of Q1, an increase of more than 200% year-over-year, according to a new report from CBRE. The Metroplex’s reputation as a business-friendly market with sound fundamentals is attracting massive loads of capital, said Danny Baker, vice chairman for CBRE’s Multifamily Investment Sales team.

“The overwhelming demand for apartments is not an anecdote — it’s real,” he said. “There’s going to be higher transaction activity for the next couple of years.”  

Investors are banking on high-growth markets with accelerating rents, and DFW checks both of those boxes. It is expected the population of DFW will outpace the nation by about 250% for the next five to seven years, Baker said, in part due to high levels of in-migration. 

“The fundamentals that exist here are not common across the U.S.,” he said. “There is significant outperformance here from a rent growth perspective, and there appears to be sustainability in those fundamentals.”

An imbalance between supply and demand prompted rents in DFW to grow by an average of 18.5% year-over-year. Baker said the pace of rent growth may slow down, but DFW will likely outperform other metros for the foreseeable future. Texas is also a landlord-friendly state, which gives investors assurance that properties will continue to garner income, said Kevin O’Boyle, senior vice president with CBRE.

“We’re not throwing around rent control like some other metros around the country,” he said. “Those kinds of measures that some municipalities are putting together in other states are making investors skittish. Those red flags are not showing up in Texas.”

DFW’s tight housing market is another factor driving outsized demand for rentals, Baker said. Tenants used to view the rental market as a stepping stone toward buying a home, but many are now staying in apartments longer because of how difficult it is to buy. This is creating a scenario where multifamily occupancy rates are pushing 97%, which Baker said is abnormally high for a metro area the size of DFW.

“That door is much more closed today than it ever has been before,” he said. “You don’t really have people leaving the renter pool, you just have more people entering it.”

DFW’s emerging build-to-rent market could pose a threat as some investors choose to reallocate money away from traditional multifamily, but Baker said DFW’s growing pool of investors should neutralize any significant impact. According to a recent analysis by CBRE, there are 15,000 more investment firms executing confidentiality agreements and reviewing multifamily listings today than there were before the pandemic, Baker said. 

“[BTR] could potentially pull some capital away from traditional multifamily investment,” he said. “But there’s so many more new investors in the space that aren’t doing that, that net-net, there is probably significantly more liquidity for traditional multifamily than any other year in history.” 

Fairly extreme levels of volatility in the stock market could also slow momentum, but Baker argues those dynamics could make multifamily more attractive to investors since rents can be frequently adjusted to account for rising levels of inflation.

“In multifamily, you have the opportunity to actually grow the [net-operating income] as opposed to other asset classes that have long-term, fixed leases,” he said.

Related Topics: CBRE, Danny Baker, Kevin O'Boyle