Commercial | Spring 2025

Apartment markets across the nation have been scrutinized by investors and developers as several years of historically strong demand have led to overbuilding. Nowhere is this more evident than in the Sunbelt, a region that experienced increased migration due to the COVID-19 pandemic.

By analyzing year-end data from CoStar, we’re able to get a better understanding of supply and demand in 2024. The data show that, nationally, there were 168,000 units delivered and a total net absorption of just over 139,000. These represent 0.9 and 0.7 percent of 2023 inventory, respectively. This results in a net oversupply for 2024 of 0.2 percentage points of inventory.

Texas accounts for 12 percent of all multifamily units in the U.S., and its performance in deliveries and net absorption exceeded its share of inventory. Texas saw almost 30,000 units delivered, or 18 percent of the U.S. total. By comparison, net absorption was barely over 21,000 units. This amounted to about 15 percent of absorbed units, leading to an oversupply of 0.36 percent of 2023 total inventory, or more than double the national rate. The supply and demand situation in Texas has been more dynamic quarter–to–quarter than appears in these annual totals.

From 2021 through the end of 2024, Texas apartment supply has exceeded demand. The multifamily market went from being roughly balanced, with supply equaling demand prior to the pandemic, to positive net demand in 2021. Since then, more units have been delivered than absorbed.

On an annualized basis, typical construction levels ranged from 3.5 to 5.5 percent of inventory and grew to over 8 percent by mid-2023. This statewide average included dramatic construction levels in Austin, which exceeded 20 percent of inventory. No other major Texas market saw its pipeline reach double digits.

This persistent oversupply has continued to add to the state’s inventory of vacant units. From 2018 through mid-2021, Texas maintained about 200,000 vacant units. With the modest inventory increase seen in those years, this implied a gradually falling vacancy rate. Since 2021, total vacant inventory had grown to over 290,000 units.

Oversupply has negatively impacted rent. Prior to the pandemic, annual asking rent growth was about 3 percent. Starting in third quarter 2020, rent growth accelerated through mid-2022, peaking at over 11 percent. Since then, asking rent growth rates have fallen, turned negative by the end of 2023, and remained negative throughout 2024.

This softness in asking rent underestimates the true state of the apartment market. Landlord concessions are widespread in the form of months of free rent. Effective rent decreases are likely over 5 percent in the most overbuilt markets.

With higher interest rates and falling rent performance, apartment construction has slowed. Starts in 2024 were less than half the level of prior years. With fewer expected deliveries and continued population growth, it will still take many quarters for the market balance to return. In Dallas-Fort Worth, Houston, and El Paso, the market imbalance has improved steadily through 2024. The situation in San Antonio and the Rio Grande Valley is mixed. The imbalance in Austin is the most extreme in the state. Prospective renters there should expect great deals on new apartments for some time to come.

Daniel Oney, Ph.D. ([email protected]) is research director with the Texas Real Estate Research Center.