After a challenging couple of years, it appears the Dallas – Fort Worth multifamily market has finally turned the corner. While challenges such as falling occupancy and average effective rent declines remain, clear progress has been made. This progress provides cause for optimism as 2025 rounds into view.

All numbers will refer to conventional properties of at least fifty units.

New Supply and Net Absorption

A major headwind to multifamily performance since the heady days of 2021 has been a surge in new supply. Supply pressure has certainly not been unique to the DFW market, but the area has typified the recent supply boom. In fact, no other market in the country has added more new properties since the start of 2022 than DFW.

Through November of this year, more than 35,000 new units were delivered. This level of new supply outpaced any recent year by a comfortable margin. Roughly 48,000 units are currently under construction, with about 30,000 of those units expected to begin leasing sometime in 2025.  Should expectations hold, 2024 will represent the deliveries peak for this cycle.

Some modicum of relief visible on the horizon in terms of supply growth is itself a reason for optimism moving forward. Net absorption performance offers another reason. Approximately 20,000 net units were absorbed this year through November across the market. This level of demand more than doubled last year’s total through the same portion of the calendar and more than quadrupled the total from 2022. This year’s net absorption has fully returned to the typical pre-pandemic range before the high volatility of the last few years.

Encouragingly, net absorption for all four price classes have managed year-over-year improvement. Class A demand has been robust, but Class B and Class C have improved the most. Class B net absorption rose by more than 50% to around 6,800 units through November. Class C followed net absorption of just more than 600 units in the period last year to more than 4,700 units this year.

Even Class D, which is set to finish 2024 with a net loss of leased units for a third consecutive year has seen the decline steadily diminish from 2022 through 2024.

Average Occupancy

While the outlook for new supply and recent developments in apartment demand paint an encouraging picture, average occupancy remains an issue. After being steadily dragged downward since 2021, DFW average occupancy closed November at 87%. Not since the depths of the Great Recession has average market occupancy been this low. With further occupancy decline possible in the winter months, that previous trough value may be tested.

For properties that began the year already stabilized, average occupancy closed November slightly below 92%. This was below the national average of 93%, but not dramatically so given the extent of recent new supply for DFW. For stabilized properties, occupancy remains well above the Great Recession minimum value of about 88%.

While Class A average occupancy finished November the lowest of the four price tiers at around 81%, no price class managed to remain above 90%. Class C was closest with an average occupancy with 50 basis points of 90%.

Not all is doom and gloom, however. Thanks to improved apartment demand, average occupancy has declined less this year than in 2023. With new supply expected to decline some next year, and reason to believe the consistent demand improvement of the last two years will persist into 2025, there appears to be light at the end of the tunnel for cratering market occupancy once spring arrives.

Average Effective Rent and Lease Concessions

A similar dynamic has been at play for DFW rent growth. Occupancy well below the long-term average has been a significant headwind to rent growth over the last couple of years. Nevertheless, the worst of the declines appear to be in the rearview mirror.

After a 1.1% decline in the average effective rent for new leases through November of last year, this year suffered a slide of only 0.7%. Even after the losses of 2023 and 2024, the average effective rent finished November at $1,508 per unit – miles ahead of the $1,194 average from November of 2020.

Not only has the average effective rent decline been mitigated relative to last year, but the first signs of a turnaround have developed in the price class data. After suffering a decline last year, rent growth has returned to the positive both for Class A and Class B properties this year.

For Class A, a 3% gain through November brought that subset comfortably back to positive territory, while a 0.4% gain for Class B could conceivably finish 2024 slightly below zero. Nevertheless, both have shown marked improvement from a year ago and this bodes well for the workforce housing segments next year.

Also worth mentioning is the slowdown in the proliferation of lease concessions. After a 40% increase in 2022 and a further increase in excess of 100% in 2023, lease concession availability in the same portion of 2024 rose by a more modest 30%.

That 40% of conventional properties ended November offering a discount for new residents should not be minimized. However, apartment demand has at least responded positively. And, as with the decline in average occupancy and rent, the percent change has moderated.

Takeaways

All things considered, 2024 has been a step in the right direction for Dallas – Fort Worth multifamily. Challenges undoubtedly remain. Average occupancy is at its lowest point since the depths of the Great Recession – with more ground to give in the coming months. Average effective rent will finish the year in negative territory for the second straight year. New supply, though expected to be lower in 2025 than in 2024, will still be a challenge next year.

However, a robust and consistent upward trend in apartment demand has finally returned the market to its pre-pandemic range. The resurgence in net absorption has been broad-based with progress made across the price classes. This improvement in demand, paired with a moderate decrease in new supply next year should allow for continued progress. In 2025, metrics like average occupancy change, average effective rent change, and lease concession availability could finally make a turn for the better.

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