Heavy Multifamily Trading, ‘Lender Fatigue,’ More Mass Timber: How DFW's Market Will Shape Up In 2024

As featured in "BISNOW" 
January 16, 2024
Olivia Lueckemeyer, Dallas-Fort Worth 
 

After spending the last 18 months shrouded in uncertainty, many real estate professionals in North Texas were reluctant to predict how the market would perform in the new year.

But given strong signals of rate cuts from the Federal Reserve, a deep reservoir of built-in Texas enthusiasm and a stronger baseline performance than nearly every one of its peer cities, commercial real estate stakeholders predict the Metroplex will remain one of the best CRE markets in the nation, buoyed by strong job growth and continued in-migration. Deal volume fell precipitously in 2023, yet Dallas-Fort Worth remained the top U.S. metro for commercial property investment. Sources told Bisnow that despite economic bumps along the road, that's not likely to change in 2024.

“DFW will be one of the first markets to come out of this slower environment that we are currently in,” CBRE First Vice President Patrick Benoist said. “But I think that will occur more in the back half of the year than the first." The mere possibility of interest rate cuts should get things moving again, though those queried by Bisnow were split on how quickly changes to monetary policy would occur. In the meantime, though, the past year's economic turmoil is slated to create once-in-a-generation opportunities for buyers ready to capitalize on distress.

In that regard, experts say 2024 could be a landmark year for some. “The Federal Reserve doesn’t want to make the same mistakes that were made in the late ’70s or early ’80s and cut too soon,” co-founder and President of CapRock Partners Jon Pharris said. “As investors and developers, we always want to believe the optimistic viewpoint, but I think the cutting will take longer and be slower than most people want.”

Bisnow spoke to a handful of CRE leaders in DFW to forecast the year ahead. Here’s what stood out.

PREDICTION 1: Renting Remains More Economical Than Owning

A dearth of housing inventory and elevated mortgage rates have kept homeownership out of reach for many North Texans over the past few years. While there is reason to hope for lower prices in the coming months, it will likely still be cheaper to rent than to buy in 2024, said Michelle King, vice president of operations at JPI.

“With higher home prices and record-level interest rates, the spread between homeownership and rental costs continues to make renting significantly more economical than owning,” King told Bisnow in an email. “Even with the near-term inventory growth, housing is likely to tighten in the future as permitting slows because of more limited access to capital.”

A deluge of new apartments coming online in Texas has already begun to dampen pricing power at DFW-area apartments, with January data from MRI Software showing rental rate growth declining by 1.2% over the last 12 months.

More than 44,000 units are slated to deliver over the next two years. That trend is expected to continue, which should provide some relief for cost-burdened tenants. This is especially true in the Class-A market, which will comprise the bulk of new deliveries, said RR Living CEO Melanie French.

“When you have a lot coming on board at one time, you’ll see that temporary drop in rates and heavy specials,” she said. “Those that get built want to cross that 90% occupancy and get stabilized, so all of the sudden they are giving two months free.”