In a notable shift for 2024 within Texas, a healthy proportion of small and mid-sized Texas apartment markets are poised to surpass the major Texas markets that have historically led the state in rent growth. This change is underpinned by a more balanced dynamic between supply and demand in these smaller markets. While the economic vigor and cultural allure of Texas’ major cities have traditionally made them focal points for investment, the spotlight is gradually moving towards these smaller markets. Their appeal is increasingly recognized, largely attributed to a pace of development that aligns more closely with sustainable growth, presenting opportunities for investors looking for new frontiers.
Secondary and tertiary Texas markets are forecasted to see the largest rent gains in 2024 on average. Unlike their larger counterparts, these markets have not seen the same level of developer activity. This more measured pace has ensured that supply and demand remain in closer equilibrium, preserving the potential for healthy rent growth. Markets such as El Paso and Laredo exemplify this trend, showcasing strong rent growth forecasts above the U.S. forecasted average of 2.3%. In contrast, the combined average rent growth for the four primary Texas markets is projected at just 1.9% for the last quarter of 2024. This divergence highlights the impact of the rapid development in larger markets, where an influx of new units has outstripped demand, subsequently tempering rent growth expectations.
For investors traditionally fixated on the major Texas markets, the current dynamics offer a compelling case for diversification. Small Texas markets, with their better-balanced supply-demand equation, present not just a buffer against the volatility of larger markets but also a unique opportunity for growth. The appeal lies not only in the potential for higher short-term rent gains but also in the lower entry barriers and the opportunity to benefit from the growth trajectories of these emerging markets.
It’s crucial, however, to acknowledge that the Major Texas markets, despite the current strain from elevated deliveries, retain their long-term appeal. The fundamental drivers that have historically made these markets desirable—such as robust business growth, a thriving job market, and significant in-migration of people—remain intact. These enduring qualities ensure that, over the long haul, the major Texas markets will continue to be vibrant centers of activity and potential.
For investors, the current market conditions advocate for a more nuanced and strategic approach. While the long-term opportunities in major markets are clear, a well-diversified portfolio should also consider the growth potential of smaller markets. This dual focus allows investors to capitalize on the immediate upside in smaller markets that currently exists while still being positioned to benefit from the eventual rebalancing and continued growth in the larger markets.
| Texas Markets | Current Number Of Units Under Construction | Construction as % of Total Inventory | 4Q 2024 Forecasted Rent Growth |
|---|---|---|---|
| Victoria | 0 | 0.0% | 2.5% |
| Wichita Falls | 0 | 0.0% | 2.1% |
| Laredo | 0 | 0.0% | 3.8% |
| Texarkana | 186 | 2.7% | 2.7% |
| Abilene | 0 | 0.0% | 2.5% |
| Longview | 144 | 1.7% | 2.0% |
| Odessa | 0 | 0.0% | 2.9% |
| Small TX Markets | 330 | 0.6% | 2.6% |
| Texas Markets | Current Number Of Units Under Construction | Construction as % of Total Inventory | 4Q 2024 Forecasted Rent Growth |
|---|---|---|---|
| Tyler | 0 | 0.0% | 0.5% |
| Waco | 1,415 | 9.7% | 2.9% |
| Amarillo | 0 | 0.0% | 2.4% |
| Midland | 0 | 0.0% | 3.3% |
| Beaumont | 108 | 0.6% | 3.0% |
| McAllen | 1,298 | 6.8% | 2.9% |
| College Station | 336 | 1.7% | 2.8% |
| Killeen | 1,275 | 6.1% | 0.8% |
| Lubbock | 941 | 3.8% | 1.9% |
| Corpus Christi | 1,582 | 5.0% | 1.8% |
| El Paso | 629 | 1.4% | 3.8% |
| Midsized TX Markets | 7,750 | 3.1% | 2.6% |
| Texas Markets | Current Number Of Units Under Construction | Construction as % of Total Inventory | 4Q 2024 Forecasted Rent Growth |
|---|---|---|---|
| San Antonio | 18,081 | 8.5% | 2.0% |
| Austin | 42,092 | 14.7% | 0.6% |
| Houston | 25,699 | 3.7% | 2.2% |
| Dallas-Fort Worth | 55,372 | 6.5% | 2.7% |
| Large TX Markets | 141,244 | 6.9% | 1.9% |
| Current Number Of Units Under Construction | Construction as % of Total Inventory | 4Q 2024 Forecasted Rent Growth | |
|---|---|---|---|
| United States of America | 964,702 | 5.0% | 2.3% |
As we stand at this juncture, the Texas real estate market is writing a new chapter, one where the secondary and tertiary Texas markets emerge from the shadows of their larger brethren, offering investors a fresh perspective and new opportunities. This shift invites a broader vision, one that sees beyond the immediate horizons of the major markets and recognizes the potential woven into the fabric of Texas’ smaller communities. For those willing to diversify and explore, the small and mid-sized Texas markets stand ready, offering a blend of short-term gains and the promise of long-term growth.
