Absorption Surges Ahead of Prior-Year Pace for Multifamily in Dallas

Renter demand for apartment units remained elevated in Dallas-Fort Worth at the start of 2025, with absorption totaling more than 10,000 units. Absorption figures at the start of this year were well ahead of the 2024 pace, and consistent with the elevated demand that has been in place for the past 12 months. The first quarter marked the fourth consecutive quarter where absorption surged past the 10,000-unit threshold. Additionally, absorption has now outpaced deliveries of new units in each of the last three quarters, resulting in vacancy declines totaling 90 basis points. While absorption has been gaining momentum, the pace of supply growth is slowing. Deliveries in the first quarter were down 6% compared to totals from one year earlier, and the number of units under construction has contracted by 30% as starts have slowed.

Transaction totals in Dallas-Fort Worth to start 2025 were ahead of the pace established at the beginning of last year, but volumes are still down from peaks in recent years. Deals are getting done at a fairly steady rate, with buyers acquiring a mix of 1970s- and 1980s-vintage Class B and Class C properties, as well as Class A units delivered in the past 10 years. The Lewisville/Flower Mound and North Fort Worth submarkets have been active spots for the sales of newer properties in recent months, while East Dallas has led the way in transactions involving older vintages. In transactions where valuations have been disclosed, per-unit pricing levels have proven to be consistent for the past few years, despite interest rate volatility. Cap rates have largely held steady for the past several quarters.

Looking ahead

A strong start to 2025 in the Dallas-Fort Worth multifamily market has set the stage for continued improvement through the remainder of the year. A handful of key trends are signaling the strengthening in the market. The first was a surge in absorption, which began to fully gain momentum in the second quarter of last year and has been sustained to this point. This continued renter demand has pushed vacancy lower in each of the past three quarters. Absorption is expected to drive further tightening in vacancy rates through the rest of 2025. The pace of new construction is slowing, easing supply-side pressures in the market. The final indicator that operators will monitor is the direction of rents in the market. As of the first quarter, rents were still ticking slightly lower, but that trend is forecast to reverse course in either the second or third quarter, and the market is forecast to post a modest rent increase for the full year.

The Dallas-Fort Worth market is expected to remain a leader in multifamily investment sales activity, even as transaction volume has leveled off in recent periods. The outlook for the rest of this year calls for an uptick in sales velocity as operating fundamentals strengthen. The interest rate environment has also weighed on activity levels in recent quarters, with rates higher than originally anticipated and particularly volatile from late 2024 through the first few months of this year. A more stable period of lower interest rates is likely to emerge in the second half of this year, which would support additional transaction volume going forward. To this point, cap rates have remained fairly steady for the past several quarters, but some compression could occur if financing costs ease and rental rates gain momentum in the second half of the year.

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