Should DFW be concerned about overbuilding of units?

September 15, 2020 by Ted Bauer

Just to frame this up: the CEO of Berkshire Property Holdings, Zamir Kazi, gave an interview to Dallas Business Journal. Berkshire Property Holdings is based in Orlando, but they're bullish on the DFW market. They just had a $300M fundraising round, but even before that round, they closed on about 568 units in Richardson at a price tag of $56.8M.  Oh hey, quick sidebar -- you interested in Richardson? We got you covered with Richardson luxury apartments.

Now, back to this Dallas Business Journal interview. Kazi keeps saying how great DFW is, as we've discussed before in terms of corporate relocations to DFW and various estimates of the DFW population surge. As Kazi says: "DFW has job growth, population growth, and rent growth." Indeed. 

The interviewer asks Kazi: "What's your biggest risk in DFW?"

He says:

Probably overbuilding of units. But I don’t think there are any new developments planned over the next few years in the area where we are in Richardson, nor is there much space to build out there. I think in that particular submarket we’re fine, but there could be an overbuilding issue (overall) like we’re seeing in Houston. That’s the biggest risk but as long as population keeps growing, I don’t think it will be an issue.

It is true that DFW has led the nation in apartment construction for three straight years. 

Kazi further brings up Houston. Houston had a lot of multi-family construction, and now what's happening is that new Class A construction (newest, highest-quality buildings in a market) can offer 2-3 month "concessions," or rent that's perceived as free but is essentially prorated into a longer contract. The older end of the Class A market in Houston can't really compete in terms of attracting new tenants. Kazi calls it a process of different complexes having to "give away rent." Concessions are absolutely also happening in DFW,  but at a lower level than Houston. 

If you add all this together, does that mean we could over-build as a market and see prices come down or more concessions? It's possible, but it's not likely to happen anytime soon. 2021 could see some DFW price drops, but it's not likely to be drastic. 

These are more longer-term trends to consider as you think about renting vs. buying over the next 3-4 years.

About the Author

Ted Bauer

Ted Bauer is a writer/editor for White Rock Locators focused on as much cool content about the DFW Metroplex rental scene as he can possibly find week-to-week.