DFW’s apartment market still strong, although angst exists as to performance and outlook

DFW’s news has recently been reporting turmoil in the multifamily sales sector due to the significant new supply hitting the market in the last couple of years and the “loss of property-level income stemming from lower rent growth”. While new deliveries are up significantly, the overall apartment market is performing well and predictably. In looking at performance by vintage, occupancy is surprisingly stable. Current occupancy for all stabilized vintages (between 1990 and 2017) now perform in a very tight range and average 93.3%.

In comparison, occupancy essentially peaked in stabilized assets during 2012–2016, when it touched the mid-94% to 95% range. For DFW, however, occupancy in stabilized properties has averaged 93% to 94% since 2010, putting current performance competently in line with the region’s historic average. The one dramatic change is that rents are up significantly over this timeframe. Back in 2018, the newest offerings rented for $1,611 a month. Currently, the newest apartments rent for $1,938 per month—that is an increase of over 20%. This level of price gain has driven up rents in older assets as well. In 2018, 1990-1999 vintage apartments rented for $1,249 per month versus $1,630 today—an increase of 30%.

Currently, DFW’s extreme rent gains have flattened. Average effective rents in all assets, even the oldest (1980-1989), are roughly on par with where they had been in 2021 and 2022. In addition, the rent “premium” between vintages is coming in at a very consistent $50 to $100 per month, although there is now a bigger step up ($400 per month) from the oldest product to opt into the next newer vintage (1990-1999). While the past high rent increases were seen as a boon, the market’s current “stability” should be viewed as more reasonable and create a more predictable outlook.

Unfortunately, today’s financial turmoil is centered mostly on the “capital stack” due to the pressure of higher interest rates on refinancing, combined with above-average expense increases (insurance, taxes, and other operating costs). These higher costs are not balanced against the more normal actual rents that are lower than the ambitious numbers likely forecast in the original underwritings.