The Numbers Behind the Dallas Multifamily Boom

View over downtown Dallas from the Reunion Tower.

Dallas was one of the hottest multifamily markets in the U.S. during 2016. Rent growth accelerated as vacancy reached historic lows, strong employment growth continued to drive new development, and investment activity reached record highs.

Rental Market

Dallas posted the fastest rent growth and the lowest vacancy in the Southwest region during Q4 2016. According to Reis, the average asking rent reached $1,063/unit during the quarter, up from $1,049/unit during the third quarter, and has risen in every quarter since year-end 2009. Year-over-year, asking rent climbed 6.0%, up from $1,003/unit in Q4 2015. Reis forecasts rents will grow 5.1% during 2017, and will slow to 2.0% by 2021.

The class A average was $1,290/unit, up 5.0% year-over-year, while class B/C properties rose 5.7% to $785/unit. Central Dallas posted the highest submarket rent, at $2,103/unit.

Reis also reported that the vacancy rate in Dallas ended the year at 3.8%, an improvement from 4.7% one year ago, and the lowest level since 1993. Class A vacancy was 4.7%, while class B/C properties finished the year at 2.6%. Mesquite/Seagoville had the lowest submarket vacancy rate, at 1.2%. Reis forecasts vacancy will increase to 5.3% by the end of 2021.

New Development

Multifamily development in Dallas has been among the strongest in the nation, with the second most units completed during 2016 and planned to come online during 2017, trailing only Houston.

Construction data from Reis shows 11,567 new units completed during 2016, which built on strong totals of 11,955 units in 2015, 12,346 units in 2014, and 10,177 units in 2013. Much of the new development has been in high-amenity high-rises near downtown. Reis analysts forecast 19,696 new units to come online during 2017, representing 4.2% of the existing inventory, and would be the highest annual total on record for the market.

Amid the flood of new supply, demand has remained strong. Absorption totaled 14,462 units during 2016, the third highest total on record for the market, and absorption is forecast to reach 14,150 units for 2017.

Investment Sales

The Dallas investment market posted a record breaking fourth quarter. According to data compiled by Real Capital Analytics, multifamily volume reached $3.1 billion, more than double the five-year quarterly average of $1.7 billion, and the highest quarterly total on record for the market. Sales totaled $9.4 billion during 2016, higher than the 2015 total of $8.3 billion. There were 406 significant transactions recorded during the year, compared with 392 for all of 2015.

The purchase of Landmark Apartment Trust Inc. by Starwood Capital Group and Milestone Apartments REIT in January accounted for a significant portion of Dallas sales volume in 2016. The deal included 27 multifamily properties in the Dallas market, made up of more than 6,800 units and valued at approximately $458.1 million.

Dallas also solidified its standing as a desirable market for foreign investment. A total of $341.7 million in foreign capital was used to purchase multifamily properties in the market during 2016, which was following an even stronger 2015 when $1.6 billion in capital came through. Furthermore, Dallas has been the number two destination in the U.S. for foreign multifamily investment over the past five years, trailing only Manhattan.

The average multifamily sale price in Dallas for 2016 was $112,846/unit, the highest level on record for the market, and up 21% from $93,158/unit during 2015. In comparison, the U.S. overall average sale price was $145,720/unit, up 7.2% from $135,895/unit one year ago.

The average cap rate for 2016 sales in Dallas was 6.1%, down from 6.5% in 2015, and the most recent high of 8.2% in February 2009. The cap rate spread over the 10-year Treasury yield was 355 bps, down 69 bps year-over-year, which was tighter than the five-year average of 437 bps. In comparison, the U.S. cap rate was 5.7%, as compared with 5.9% one year ago.

Economic Overview

Data from the U.S. Bureau of Labor Statistics showed that employment for the Dallas-Plano-Irving, TX metropolitan area increased 4.2% (representing 103,400 jobs) during 2016, higher than the 1.6% gain for the U.S. overall during that time. The largest gains over the last 12 months were in mining, logging, and construction (up 6.5%); professional and business services (up 6.1%); and leisure and hospitality (up 5.6%). No major industry sectors reported losses on the year. The unemployment rate rose to 3.6%, essentially unchanged from one year ago, and lower than the U.S. overall rate of 4.7%.

The housing market also remained strong during the year, with price growth higher than the national average. The S&P Case-Shiller Home Price Index for Dallas increased 8.1% during the 12 months ending in December, outpacing the U.S. index, which increased 5.8%.

The financial services and business services sectors are expected to continue to drive employment growth in Dallas during 2017. The area’s strength as a distribution center, high concentration of corporate headquarters, and favorable demographics will solidify its economy in the longer run; although growth will be business-cycle dependent because of a high exposure to the volatile high tech industry.


The market boom in Dallas has taken a toll on affordability. The city council has taken up a task force to address the issue and a recent report from the Federal Reserve Bank of Dallas showed the housing market to be the least affordable major metro area in the state.

Zillow measures rental affordability as the share of household income spent on rental payments, excluding utilities and other costs.

According to data from Zillow, rent affordability in Dallas-Fort Worth, TX was 29.9% at the end of 2016, ranking 84th out of 300 markets. In comparison, the historical average for the market measured from 1985 through 1999 was 21.8%, ranking a more favorable 241st.

Despite the recent increases, rent affordability in Dallas remained only slightly higher than the national average of 29.2% at year-end. Historically, the national average was 25.8%.