During the third quarter, the city recorded the highest level of quarterly absorption in three years, says the report. With 2,465 units absorbed in Q3, the year-to-date total has reached 4,961 units. By comparison, for all of 2003, the city experienced negative absorption of 1,961 units.

The class A market has posted the most impressive gains, says Richard Zigler, director of research for O'Connor. In Q3, it absorbed 2,923 units for a 12-month total of 9,141. Class A absorption numbers for 2002 and 2003 were far less impressive at 3,513 and 2,370, respectively. The total multifamily inventory in Houston is approaching 473,000 units. Of that number, more than 128,000 units are class A.

On a marketwide basis, vacancies continue to increase, according to Zigler. Over the last year, vacancy has increased 2.5%, bringing occupancy down from 90.1% to 87.5%. The class A segment is the only one to experience improving fundamentals. At the end of the third quarter, class A occupancy was 84.5% compared to 83.9% for the same period last year.