January 13, 2025

Multifamily Vacancy Inches Lower with Absorption on an Upswing in Dallas

Q3 2024

The Dallas-Fort Worth multifamily market showed a few signs of improvement during the third quarter, even as developers continued to move projects from the construction pipeline into the inventory of available units. The local vacancy rate declined slightly from the second quarter to the third quarter, the first tightening of overall conditions in more than two years. The strongest performance was recorded in the Dallas-Plano-Irving section of the region, with submarkets such as Richardson, Southeast Dallas, and Addison/Bent Tree featuring some of the lowest vacancy conditions. Absorption throughout the Dallas-Fort Worth area has been elevated in 2024, particularly in each of the past two quarters. Net absorption has totaled nearly 24,000 units in just the last six months. By comparison, this figure would have eclipsed the full-year totals for absorption in the region in seven of the past 10 years.

Multifamily transaction counts in Dallas-Fort Worth surged in the third quarter, as investors responded to the improvement in underlying property performance and a brightening outlook. While sales velocity year to date is still somewhat lower than 2023 levels, momentum in the investment market has been building. The recent transactions mix has included newer assets, often located in areas such as Frisco, Garland, and parts of Rockwall County, as well as several Class B properties built in the 1970s and 1980s. Arlington has been one of the top spots for sales of these older vintages in recent quarters. Year-to-date transaction counts in Arlington have already reached the total for all of 2023.

Looking ahead

The Dallas-Fort Worth multifamily market is expected to post improving operational performance in 2025, as renter demand for units remains elevated and the pace of supply growth slows. Signs of improvement began to take shape in recent quarters. Absorption totaled approximately 12,000 units in each of the past two quarters, the highest figures since demand peaked in 2021 and about 75 percent higher than the region’s long-term averages. The primary result of the elevated absorption volumes has been a leveling off of the local vacancy rate, which ticked lower during the third quarter after earlier increases. The rate will likely remain near its current range for a few more quarters before ultimately returning to its long-term range between 5 percent and 6 percent. The cooling pace of construction will help bring the market closer to equilibrium. Developers are on pace to deliver approximately 40,000 units this year, but that figure should dip by about 40 percent in 2025.

Investors are responding to the stabilizing supply and demand fundamentals in the Dallas-Fort Worth region. Activity has strengthened significantly in recent months, setting the stage for a more forceful rebound in transaction volumes in the coming year. In earlier periods, the competitive impact of new supply was the only significant variable in the local multifamily market. With properties coming online and being successfully leased-up, that layer of uncertainty has largely been resolved and investors are reengaging. The recent results highlight an investment transaction climate that is expected to carry over into 2025. Activity should remain on an upswing, including across the dozens of newly completed properties that have come online in recent years. Newer, Class A assets have accounted for a larger share of total transaction volumes in recent quarters, pulling prices higher and keeping cap rates in the low- to mid-5 percent range. With interest rates likely to be fairly stable in 2025 and property fundamentals expected to stabilize, cap rates are not expected to move significantly going forward.