HOUSTON—Is the recognized “energy capital of the world” a good bet for multifamily? On one hand, CoStar reports overall vacancy increased by 1.7% during the past 12 months and rent growth has declined by 1.5% during that same period. There has been a glut of four and five star deliveries since 2010: 17,000 units were delivered in 2016 and 20,000 units are in the pipeline for 2017.

This has led to negative rent growth and the return of concessions in some submarkets, says Thomas Burns, principal of RNB Capital Partners. One key driver of this decline is job loss in the energy sector. Job growth in the fourth quarter 2016 had slowed to a meager 0.2%, which is a far cry from 4% several years before. The other primary driver has been oversupply in certain submarkets.

On the other hand, while CoStar forecasts increased overall vacancy into 2017, a steady decrease is expected through 2021. In addition, job growth is expected to outpace the national average in the Houston metropolitan area at a rate of 2.2% versus 0.6%. The delivery pipeline is relatively empty beyond 2017 and absorption has remained relatively strong. Axiometrics projects that Houston will absorb 33,000 units in 2017, which is the highest since 2005 when Hurricane Katrina refugees inundated the city.