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Texas Apartment Markets Could Take A Financial Hit As Oversupply Fuels Rent Declines

Pricing power across apartment markets in Texas has slipped just as thousands of new units are coming online, sparking concerns that conditions are ripe for an onslaught of distress.

Markets with the biggest development pipelines are seeing sharper rent growth declines than those with less supply underway, new Avison Young data studying the top 25 U.S. markets by inventory found. And several Lone Star metros are in the path of what could be an oncoming storm.

The Alexan Waterloo in Austin was one of the many luxury apartment towers under construction in 2020.

The impact of oversupply is most acute in Austin, both statewide and nationally, according to the data. About 40,000 units are under construction in the state's capital city, or roughly 14% of existing inventory. Meanwhile, rent growth has declined more than 5% year-over-year.

Austin's supply problem is temporary, said Marcy Phillips, senior vice president of real estate development for Ryan Cos. Construction will be minimal over the next couple of years, giving the market time to absorb the excess supply coming online in the interim.

"This will fall off a cliff, with virtually no supply in 2026 and beyond," she said in an email. "That is an opportunity for rental increases."

Dallas-Fort Worth is also at risk from oversupply. The number of units under construction represents more than 6% of the existing inventory. Meanwhile, rent growth has fallen more than 1%. 

In San Antonio, units under construction represent 8% of existing inventory, while rent growth has fallen roughly 2%.

Overbuilding appears to be less of a problem in Houston, where less than 4% of existing inventory is under construction and rent growth has yet to dip into the negative. However, Avison Young data shows that insurance costs are adding immense strain for multifamily owners in the catastrophe-prone market.


Unprecedented levels of in-migration and a trend of corporate relocations caused demand for apartments to spike in Texas in the early years of the pandemic, pushing rent growth into the double digits. Developers rushed to cash in on the nation’s most promising real estate investment, fueled by cheap debt and a growing pool of renters unable to afford a home. 

Since then, competition has increased as new supply floods the market and the cost of capital has gone up. Owners who financed their properties using floating rate debt are facing the difficult prospect of refinancing, leaving some with few options but to sell at a discount or hand keys back to the bank.

This dynamic will likely be the impetus for a ramp-up of multifamily trades in 2024, Avison Young’s U.S. Capital Markets Lead of Market Intelligence Alex Ern said.

“With all eyes on the office sector woes, the early signs of distress in the multifamily space have gone almost unnoticed, which is likely to drive transactional activity in 2024,” he said in a statement. “However, investors with long-term outlooks are not expected to willingly exit investments this year.”

Some Texas apartment owners have already fallen prey, including Applesway Investment Group, which saw lenders foreclose its $229M, 3,200-unit portfolio of Class-B apartment buildings in Houston last year. The apartment sector has racked up more than $9.6B of outstanding distress nationally, with another $67.3B of potential distress on the way, according to a year-end report by MSCI Real Assets. 

When rent growth slows, many owners look to drive occupancy. Because renting is still more affordable than buying and Texas still leads the country in job growth, strong occupancy will likely buoy apartment owners for the foreseeable future, Avison Young analysts wrote in their report.

Still, owners with looming maturities may not have the luxury to bank on occupancy, and many will be forced to sell as a result. 

“Those that had the floating rates, those that were highly leveraged, they’re finding it really difficult right now,” Melanie French, CEO of Texas-based RR Living, told Bisnow in a previous interview. “Over the next six months, we’re going to see heavy trading as all of this comes together.”

UPDATE, FEB. 8, 10:33 A.M. CT: This story has been updated to include a comment from Marcy Phillips.