Watch where the new major apartment investment money is flowing. It’s the same place where homebuilders have been building. Follow the money.

Marking a significant shift in the U.S. apartment market, institutional investors are showing signs of souring on most gateway cities. They are focusing on investments in the Sun Belt and secondary metropolitan areas, which have tended to outpace others in economic growth, especially in the past several years of the post-pandemic era.

Cities such as Los Angeles, New York City, San Francisco, and Chicago were solid magnetic stalwarts for apartment investment. Major corporate headquarters, cultural amenities, robust transportation infrastructure, and other factors drove demand for apartments and owners' cash flow. Economic stability made investors feel safe.

Then, a corporate exodus began. Enterprises opted to move out of those big cities to places like Dallas, Nashville, Tennessee, Miami, Atlanta, and Charlotte, looking for business-friendlier environments, greater access to smart and less-costly talent, and lower real estate costs.

The shift in investment focus since 2020 reflects big money flowing to where the population has moved over the past several years, helping drive a significant increase in apartment construction during the COVID-19 pandemic when interest rates were low. Apartment investment and construction mirrors where new home construction has been the strongest to meet the demand for people moving jobs, weather, and cost of living.

Between 2020 and 2024, New York, Los Angeles, Chicago, Washington, D.C., Seattle, San Jose ranked among the biggest losers in the share of apartment sales compared with the previous decade, according to an analysis by Jay Parsons, head of investment strategy with Lubbock, Texas-based Madera Residential.

In contrast, Dallas-Fort Worth and Phoenix topped the list among investors' favorites, followed by Miami, Atlanta, Charlotte, Nashville, and Orlando.

Apartment sales in Dallas-Fort Worth topped all major markets for apartment sales over the period in data Parsons shows. Its “share of wallet,” as he described the investment, sat at 7.4%, a 1.3 percentage point increase from the 2010s. Atlanta was next at over 5% of sales, a gain from the previous decade.

However, New York nosedived 5.7 percentage points to settle in at third, just above Phoenix in the mid-4% range. Phoenix’s share increased by 1.1 percentage points.  

Parsons said Washington, D.C., was a surprise.

I wouldn't have expected it on this list of metro areas losing market share, considering its appeal to investors of all sizes,” he said.

This is surprising considering that the federal government and many supporting federal contract-related businesses feed the market. In 2018, e-commerce giant Amazon chose Northern Virginia for a second headquarters, spurring massive development in the area, including apartment development. However, the market is now being challenged by President Trump's return-to-office orders and a policy-driven commitment to slashing the federal workforce.

Broader Perspective

Apartment construction starts across the country have dropped to the lowest level since 2012, 40% lower than the peak, according to commercial real estate firm Cushman & Wakefield. The firm tracks investment-grade properties with 50 or more units. Developers are working through the large supply started during the pandemic, mostly in the South, which brought more than 530,000 units to market last year, the highest number on record.

Meanwhile, new home starts have been increasing. Last year, single-family starts increased and finished the year at roughly 1 million, the second-highest level since 2007. Just over 1 million single-family homes were completed in 2024, nearly touching 2022’s 1.02 million, the highest since 2007. Total completions of 1.63 million were also the highest since 2007.

A Tale of Two Markets

New York City's loss of share in apartment investment sales may be short-lived. It still leads the country in apartments under construction, with Dallas clocking in at second place. It’s been that way for a few years.

According to commercial real estate firm Cushman & Wakefield data, at the end of last year, New York City had an inventory of 909,969 apartment units after nearly 28,000 new units were added. 59,260 units were under construction. The New York City region’s population has recovered close to its pre-pandemic level and now stands at 19.1 million.  

Dallas-Fort Worth’s population is about 8.4 million, less than half the size of New York City. Yet Cushman & Wakefield data shows the area’s inventory of apartment units hit 863,386 at year’s end after adding 41,159 new units. It has the second-highest pipeline of units under construction, at 36,171. The supply of new units has pushed vacancy rates to above 11% all year, compared with 3% in New York City for much of the year before ending with 3.2%.

Asking rents declined slightly in both places. However, there is a significant difference between the two, which shows the affordability of Dallas over New York City. In New York City, rents average about $3,207, compared with $1,541 in Dallas-Fort Worth.

Still, leasing has been strong in both places, in line with demand nationally, which brought net absorption to more than 436,000 apartment units, including new and existing.

Every one of the 90 markets tracked by Cushman & Wakefield Research posted more net move-ins than move-outs, with the Sun Belt continuing to lead in growth,” the firm noted in its latest report.

According to Construction Coverage, the major difference between the two mega metros is in for-sale construction. The New York City region is at the bottom, while Dallas has been among the busiest. That’s simply a function of an urban environment in New York City versus a place where land is more readily available. Developers must go tall in New York City, which is expensive.

Chicago, San Francisco, Boston, and Los Angeles are in the bottom tier for new home construction, each for different reasons. California markets are complex because of zoning laws that have made building any housing costly, so little is done relative to other cities.