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Apartment Trades Slow As DFW Rent Growth Inches Further Into The Red

DFW apartment sales have hit a snag as the dreaded wall of supply descends on the Sun Belt.

Nearly 40,000 units hit the DFW market over the last 12 months, marking a 50-year high in apartment deliveries and causing rents to decline by 4.2% on average, according to MRI ApartmentData. More than 32,000 units are expected to debut in DFW this year, the most of any major metro, according to a midyear report by Yardi Matrix.

The loss of property-level income stemming from lower rent growth is hurting multifamily values, causing many sellers to dig in their heels as they wait for the supply glut to pass and for interest rates to come down. 


“There has been a lot of supply that has hit the market, which is causing increased competition,” said Sterling Warren, an investment sales associate at Greysteel. “A brand-new property and one that was built two years ago are competing on who can offer the lowest rent and concessions because they need heads in beds, they need that income.”

Multifamily volume totaled about $6B over the last 12 months, according to CoStar data, significantly down from the peak of $26B in 2021, when 19% of the DFW market's stock traded. Elevated interest rates are preventing properties from trading as asset values decline and cap rates inch higher.

“If the seller doesn’t have to do something, they probably aren’t going to,” Warren said. “Everybody’s motivation to sell is different. If they have fixed-rate debt and there are no operational issues, they will wait.”

Owners in the higher-end market have been hit hardest by the supply glut, lowering rents by 2.1% on average to compete with the newest, shiniest product. Meanwhile, rents in the B and C market were down 1% in the first quarter, according to Colliers.

Despite increased competition, luxury properties have managed to maintain the highest occupancy rate of all segments at more than 93%. Most of the properties that are trading are in the lower-tier space, where sellers are more willing to capitulate on pricing and buyers are able to snag the best deals. 

“I’ve seen more deal volume in the last few months than in the last year,” said Abbie Thomson, managing member and chief operating officer at Dallas-based Thomson Multifamily Group, which focuses mostly on the Class-B and C investment market. 

“The volume of product online and things that are up for sale at the moment has been higher than the last six months at minimum. It’s starting to remind me of the volume of deals we were underwriting in 2021 and early 2022.”

Distress is on the rise among value-add properties that were financed using short-term floating-rate debt during the early years of the pandemic. Many of those loans have now reached maturity, and refinancing at the current rate isn't an option for owners who can no longer cover their monthly debt service, Thomson said.

“Business plans built on those floating-rate debt products are no longer sustainable in the current market,” she said. “They are being put in a position that they need to sell.”

Owners bold enough to pick up properties are hoping they will be rewarded down the road when interest rates go down. Some are well-heeled enough to take a temporary hit on rent until demand picks back up, Warren said.

“Everybody wants to get deals done, so groups are trying to stay conservative in underwriting while trying to still stay competitive,” she said.

Thomson and Warren said the oversupply phenomenon will be short-lived. A precipitous decline in new construction and elevated mortgage rates in the purchase market are enough to buoy demand for apartments in the short term.

But even with those factors working in the market’s favor, they said it may still be another 12 to 24 months before rents improve.

“[Oversupply] may bring down rents for a little bit, but the influx of population and growth in the DFW area is just going to shift that back up pretty quickly,” Thomson said. “The demand for housing like this and what is being built in the area is still so high.”