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DFW Apartment Bubble Deflated In 2023 As Onslaught Of New Units Pushed Supply Ahead Of Demand

It was a year of reckoning for the local apartment industry.

After notching a series of wins in the wake of the pandemic, occupancy in Dallas-Fort Worth declined each month in 2023, causing rent growth to falter in the back half of the year. A wave of new units coming online snatched the ball from owners and placed it firmly in the tenants' court, marking a reversal in the power dynamic that has defined the market for the last three years.


“There’s just been wild swings in supply and demand,” MRI ApartmentData Industry Principal Bruce McClenny said. “That’s what’s behind the drop-off in [rental] rates — there are so many new units coming on, and the timing isn’t right.” 

More than 8,100 new units opened in DFW in the third quarter alone, and another 44,000 are on the way in 2024 and 2025. Meanwhile, more than 81,000 existing units sit empty, and landlords are having to work twice as hard to fill them amid fiercer competition from new development.

“When you’re talking about so many thousands of units … that is a huge amount of supply,” RR Living CEO Melanie French said. “You see building happening everywhere.”

Rapid in-migration and job growth have put DFW at the top of the roster for apartment investors. Hundreds of new projects launched over the last three years, but those units are delivering into a market on its way to becoming oversupplied — a phenomenon most didn’t see coming when demand was red-hot, McClenny said. 

“It’s a very hard task for [developers] to nail this rollout because of the development cycle and pipeline,” he said. “Once they decide to do something, it takes at least two years before that comes to fruition, maybe even longer.”

A drop-off in lending has put a dent in new starts, but nearly 72,900 apartments were under construction in DFW at the end of August — more than anywhere else in the U.S., according to a report by Institutional Property Advisors. Inventory in North Texas was expected to grow by 8% as a result.

But a glut of new supply isn’t the only headwind for the local apartment market. The relative savings compared to homeownership, another important demand driver for rentals, may also be at risk, McClenny said. 

“Everything that was once lined up in the developer’s favor is starting to turn,” he said. “We thought there would be demand out there because of the price and mortgage rates of single-family homes.”


About 79% of properties in DFW were cheaper to rent than to buy as of May, according to Redfin data. But if the Federal Reserve follows through with its proposed series of rate cuts in 2024, that dynamic could change, and apartment dwellers who move out to buy a home could trigger another spike in vacancy. 

“Once again, it’s this supply-demand whipsaw that we’ve become so used to seeing after Covid,” McClenny said. “The rise in interest rates forced people to be renters, but now that it’s opening up, that’s going to let go.” 

Still, French said she expects the impact on apartments to be minimal.

“Owning a home is more than just the amount you pay for it,” she said. “I don’t think it will be enough to negate the progress the rental market has seen.” 

Apartment occupancy in DFW started the year at 91.3% and landed at 90.4% by November, according to a report from MRI ApartmentData. Rent growth has declined in tandem, with the last three months seeing an annualized drop of 11.5%. 

Class-A properties have been the hardest hit, and that is because they are competing with the new deliveries, McClenny said. As of November, the highest-end cohort of apartments was 87.4% occupied, compared to 92.7% in Class-B and 91.9% in Class-C, according to MRI ApartmentData.

“The move-ins are all happening in the Class-A space, but the problem goes back to supply,” he said. “When you add 3,000 to 4,000 units every month, there’s no way you are covering that in terms of move-ins.” 

To get more heads in beds and meet their pro formas, Class-A owners are increasingly offering move-in specials and concessions, which are dragging down rent growth, McClenny said. More than 40% of Class-A properties were offering some form of concessions as of mid-December, which caused marketwide rent growth to decline by 2.6%, he added.

Declining fundamentals have put some landlords — particularly those with floating-rate debt — in hot water. Owners unable to refinance once loans come due may be forced to sell, and RR Living is eagerly awaiting those opportunities, French said. 

“Over the next six months, we are going to see heavy trading,” she said. “That will jump-start the whole acquisition and value-add process, and all of that together is good for the market. It’s good for the economy, it’s good for employees — it’s good all around.”

Too much supply has a tendency to flatten rent growth, which is where McClenny said the DFW market is headed in 2024. After racking up triple the average annual rent growth in 2021, the market had a lot of room to fall, and the past few years of superior performance should cushion its landing in the near term.

“Dallas-Fort Worth is such a magnet, such a vibrant economy, and it has traditionally attracted a lot of people,” he said. “I imagine it will continue to do so. This is just a bad timing thing.”