While historically elevated interest rates could slow the Dallas-Fort Worth rental unit market in 2023, robust demand may help offset the headwind.

According to John Sebree, senior vice president and national director of the commercial property firm Marcus & Millichap, while “[t]ransactions have dropped off substantially… the fundamentals of multifamily are rock solid” and “[t]he Texas markets are continuing to grow.”

As The Dallas Express previously reported, the industry outlook varies. While experts are concerned about persistently high inflation, the extent of the worry depends on whom is asked.

Arthur Margon, a partner with Rosen Consulting Group, believes if the Fed truly wants to hit their 2% annual inflation target, “they are going to have to wring [it] out of the economy like a wet towel.”

While it has softened over four consecutive months, U.S. annual inflation was still 7.7% at the last reading in October.

With borrowing costs roughly double what they were at the beginning of the year, according to Sebree, local industry professionals anticipate less than half the rental unit starts in the city in 2023.

DFW has experienced surging activity in the commercial property market in recent years. Over $18 billion in apartment properties were purchased in the city during the first three quarters of 2022 alone, more than any other metro area in the United States.

The Trammell Crow Center in downtown Dallas was the biggest deal in the city so far this year. At $600 million, the sale marked the 10th-largest commercial transaction in the country in 2022.

Despite some dire indicators, DFW’s multifamily real estate sector has a potentially strong tailwind at its back: young people. Cities in the Lone Star state continue to attract substantial numbers of young transplants searching for work.

According to an analysis conducted by PODS Moving & Storage of almost 500,000 customers who relocated between January 2021 and March 2022, DFW experienced the second-highest rise in residents in the country, losing out only to Sarasota, Florida. Texas cities Austin, Houston, and San Antonio also ranked among the top 15 nationwide.

Data from PODS is consistent with the U.S. Census Bureau, which reported that the wider DFW metropolitan area added nearly 1 million residents over the decade between 2010 and 2020.

Sebree expects the changing demographics of the city to help buoy the sector. “In five years, there will be 300,000 more 20- to 34-year-olds in the Texas metros,” according to Sebree. “Texas, as we look at the four major metro areas, is outpacing everybody else,” he said.

Sebree’s optimism is not unfounded. “You have so many people coming to Texas,” he said. And he is not wrong. DFW, in particular, expects over 114,000 new prime-age renters over the next half-decade. And the metro area leads the nation in apartment buildings, with roughly 25,000 new rental units slated to open in 2022 alone.

Incredibly, North Texas as a whole currently has over 60,000 apartments under construction.

Still, high mortgage rates loom over new homebuyers, spooking some would-be-buyers from pulling the trigger. North Texas home sales, for example, are down 20% compared to one year prior.

According to Sebree, it is not just mortgage rates, but a lack of inventory, preventing potential buyers from entering the market. “There aren’t enough homes for people to buy. They are staying in apartments longer. We still have a housing crisis,” he cautioned.

Just one out of 20 of all DFW apartments was vacant at the end of September, and North Texas’s rent surged over 13% annually during the most recent quarter.