Texas’ Booming Apartment Market Faces Supply Surge

Despite healthy demand, the even stronger supply of new units in Texas is presenting challenges for operators across the state.

Jordan B.
April 22, 2024

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Good morning. Texas faces challenges with a surplus of new units despite strong demand. Meanwhile, advances in EV technology are fueling a boom in industrial real estate, with over $80 billion in projects underway.

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Market Snapshot

S&P 500

GSPC

4,967.23

Pct Chg:
-0.88%

FTSE NAREIT

FNER

679.35

Pct Chg:
+0.51%

10Y Treasury

TNX

4.623%

Pct Chg:
-0.024

SOFR

1-month

5.33%

Pct Chg:
0.0%

*Data as of 4/19/2024 market close.

Apartment Demand

Texas’ Booming Apartment Market Faces Supply Surge

The Texas apartment market is experiencing a clash between strong demand and an even stronger supply, particularly in major metropolitan areas.

Deep dive: In Dallas, the influx of new apartments is particularly frothy, with over 33,700 lease-up units recorded as of March, which expands to 47,000 if Fort Worth’s numbers are included. This significant increase in availability is intensifying competition among property managers, who are pressured to fill units rapidly, leading to aggressive leasing incentives. For instance, in Austin, lease-up properties are offering up to 40 days of rent-free living, with some promotions extending to between nine and eleven weeks.

Shifting demographics: The oversupply is causing notable shifts in renter demographics, especially in Dallas, where Class B renters are increasingly moving into Class A properties. This trend is unusual as Class A occupancy rates typically do not lead in local markets, yet in Dallas, they have been outperforming both Class B and C categories by 50 to 100 basis points over the last six months.

➥ THE TAKEAWAY

It’s all about supply: Texas is witnessing a crest in its supply cycle, with nearly 90,000 new units completed by the first quarter of 2024, marking an all-time high for the state. This surge has expanded the existing apartment stock by 3.4%. As demand continues to ride the wave of economic and population growth, operators must now adapt to these shorter supply cycles to effectively manage market saturation and make sure deals pencil out.

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✍️ Editor’s Picks

Approved: The Anaheim City Council has unanimously greenlit Disney’s $1.9 billion proposal to expand Disneyland, including local infrastructure and affordable housing.
Caution: U.S. high-yield corporate bond funds saw their largest outflow in over a year, with investors pulling $3.75 billion amid concerns over the Federal Reserve’s aggressive stance on inflation.
Housing boom: Despite rising mortgage rates, D.R. Horton reported a 14% increase in home sales last quarter, with profits climbing to $1.2 billion—a 24% year-over-year rise.
On the green: Golf communities have gained popularity post-pandemic with improved facilities and expanded amenities, attracting a new wave of millennial residents.
Judgment Day: Elie Schwartz, CEO of Nightingale Properties, missed a payment deadline, disrupting his plan to repay investors over $50 million. Now, investors have begun seizing and liquidating his assets.
Slowing down: Despite stable transaction volumes, Brooklyn’s commercial property sales dropped in value, with a total of $936 million across 258 deals, down 34% quarterly and 15% annually.

🏘️ MULTIFAMILY

Foreclosure sale: Bank of Southern California has put up for sale three foreclosed Santa Monica apartment complexes, previously owned by developer Neil Shekhter, with a credit bid of $9.5 million, about $394,000 per unit.
Class A is in session: Primary state schools in Power 5 conferences are significantly boosting demand for student housing, where rent growth has averaged 6.2%, marking it as one of the top-performing segments in commercial real estate.
Another one: Fairfield Residential acquired Nashville’s 380-unit Landmark at Wynton Pointe for $52 million, marking its fourth purchase from the liquidating GVA this year.
Breaking ground: Palladium USA is set to begin construction on a $76 million affordable housing project in Mesquite, featuring 288 units for residents earning 60% of the area’s median income.
Bad timing: A new 110-unit apartment building in Washington D.C.’s thriving Union Market neighborhood is set for a foreclosure auction just a year after it opened.

🏭 Industrial

Major acquisition: Stonepeak has dropped $125 million in the Chicago area for the largest industrial purchase of the year, acquiring 1.7 MSF of logistics space in Elwood, Chicagoland.
Expansion: Venture One Real Estate has expanded its portfolio with the acquisition of three warehouses in Boynton Beach for $36.2 million, equating to $119 per square foot.
Columbus facility: VanTrust Real Estate has sold Building 2 of Rickenbacker Exchange at Commercial Point, a 1.2 MSF speculative industrial facility in Ohio, to W.P. Carey for $94.1 million.

🏬 RETAIL

Wage hikes: A new California law effective April 1 mandates a $20 minimum wage for restaurants with over 60 locations, leading to industry turmoil as franchises reconsider expansion plans.
On the block: The Bella Terra center, an 853,000-square-foot retail center in Huntington Beach, is up for sale, potentially fetching up to $300 million.

🏢 OFFICE

Setting up shop: Hudson Square is emerging as a prime Manhattan business hub, particularly after Google opened its New York headquarters there in February, signaling to other major companies like Disney that this is the neighborhood to be in.
Negative rating: Fitch Ratings has downgraded its outlook on Blackstone Mortgage Trust from stable to negative, citing increased credit provisions and rising non-accrual loans due to its significant exposure to the struggling office sector.

🏨 HOSPITALITY

Hotel evolution: Upper-tier hotels are investing heavily in downtown San Antonio, raising questions about whether future demand will keep pace with the new supply.
Resigned: Ashford Hospitality Trust’s CEO is set to depart as the company faces delisting and prepares to divest a significant portion of its hotel portfolio.

EV Boom

Over $80 Billion in EV Projects Spark New Demand in the South’s Industrial Real Estate

EV tech advancements are driving a surge in demand for industrial real estate, with projects worth over $80 billion announced. Here’s what it means for CRE.

The Battery Belt: The Southeast, long a hub for auto manufacturing since the 1980s, has solidified its status as a critical player in the electric vehicle (EV) sector, now dubbed “The Battery Belt.” Since the Inflation Reduction Act in 2022, the region has seen 49.4% of the U.S.’s 77 new EV projects, attracting over $80 billion in investments and nearly 49,000 projected jobs.

Source: Cushman & Wakefield

Needs for specialized real estate: The complexities of battery production require specialized facilities for recycling, quality control, and rigorous testing. As a result, the demand for pad-ready industrial sites—those prepped and primed for immediate development—is skyrocketing. Such sites are vital for accommodating the large-scale manufacturing demands of mega-factories, including Ford Motor Co.’s $5.2 billion EV plant under construction in Tennessee.

➥ THE TAKEAWAY

What it means for CRE: This surge in investment, spearheaded by industry giants and supported by gov. tax credits, is creating a big opportunity for commercial real estate developers. Gigafactories and battery plants are enhancing the area’s automotive sector, attracting major investments and driving technological advancements. This economic activity is supported by the region’s business-friendly climate and strong industry foundation. Additionally, the clustering of suppliers around these hubs is optimizing production efficiency and transforming the Southeast’s industrial landscape.