(Read more on the multifamily market.)
HOUSTON-First-quarter numbers in the region's multifamily market seem to be at odds. Local reports put occupancy down slightly yet rents are on the rise.According to statistics from ALN, occupancy was 88% at the first quarter's close, down 3.6% from Q1 2006. In M/PF YieldStar's latest report, occupancy was 91.9% area-wide, also 2% lower than a year ago. The region's inventory is 473,028 units.
Local multi-housing experts aren't concerned about the drop. For one thing, the so-called "Katrina factor," involving people moving from New Orleans in the wake of Hurricane Katrina is no longer an issue when it comes to occupancy--and hasn't been for awhile. "If there's a Katrina factor left, it's in the Cs," says Craig LaFollette, executive vice president for CB Richard Ellis Inc. in Houston.
With hurricane evacuees either returning home or moving on, the market has settled more or less back to its pre-Katrina days, which wasn't really all that bad. "Evacuee impact is about over in the market place," says Greg Willett, vice president for M/PF YieldStar. "What we'll likely see is occupancy heading back up in older product, but heading down in the top-end apartments." He says part of the reason for the potential hiccup, particularly high-end product, is the 10,157 units that are under construction.
"If there's a question mark with the buildings, it's probably with the infill or close-in locations," LaFollette says. "The cost to build new is somewhere around $150,000 to $170,000 per unit inside the loop." To support that type of cost, he says owners will need to get $1.70 per sf in rent. As a result, renters might move toward well-managed class B and class C apartments.
In addition, the sub-prime lending situation has tightened up underwriting criteria for home buying amid rising foreclosures. "People being foreclosed are coming back to the apartments," LaFollette says. The socio-economic background of the former homeowners, he adds, dictates they'll return to apartments they can afford like class B and class C complexes.
Willett says older product might get an occupancy uptick in the coming months, but it's not going to be across the board. "Our forecast over the next year is for occupancy to stay pretty much where it is," he adds. "It might drift down two-tenths of a point, but that's about it."
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