Also, it is important to realize where the declines have been the sharpest. According to Scott Bray of Berkadia, most of the pain has been felt in submarkets that had the largest number of recent deliveries. These were class-A properties and even these have already showed signs of recovery. While two- to three-month concessions did occur, these were primarily in class-A product and these concessions have already started to relax. Conversely, the oil recession did not broadly impact the blue-collar workforce, so class-B and C product has remained strong with good rent growth and strong occupancy.

Bray also says that Houston is the fourth largest city in the country with multiple submarkets that may perform differently at various times. The eastern submarkets, which are more petrochemical dependent, have done well through the oil recession, with steady rent growth and even record collections, while western submarkets that are more oil-dependent, have suffered declines.

With the recent depression of rents, a slowdown in deliveries and the potential for energy sector recovery, there may be value in Houston for the patient investor, advises Burns. If oversupply and lack of job growth were primary drivers, then the slowdown in deliveries and steady recovery of the oil industry could bode well for those who buy now.

Burns points out while there has not been any relaxation of cap rates, there has been rent depression in the class-A space. This lowers current NOI and in turn, may produce a discount to future value. Class-B properties have felt minimal impact and if the trend continues, those properties could produce steady returns with strong rent growth into the future.

“Nobody has a crystal ball, but Houston could have the jobs and the population to eventually absorb the current and future deliveries,” Burns tells GlobeSt.com. “Everybody needs a place to live and you can't beat Texas.”

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.

So, what's the answer? Houston's economy is more diverse than it was 20 years ago. It is home to the largest medical center in the world and the second largest US port. It also holds four of the eight largest petrochemical plants in the world. Houston continues to produce jobs in the medical industry and when the oil industry regroups, there is potential for explosive job growth, says Burns.

Also, it is important to realize where the declines have been the sharpest. According to Scott Bray of Berkadia, most of the pain has been felt in submarkets that had the largest number of recent deliveries. These were class-A properties and even these have already showed signs of recovery. While two- to three-month concessions did occur, these were primarily in class-A product and these concessions have already started to relax. Conversely, the oil recession did not broadly impact the blue-collar workforce, so class-B and C product has remained strong with good rent growth and strong occupancy.

Bray also says that Houston is the fourth largest city in the country with multiple submarkets that may perform differently at various times. The eastern submarkets, which are more petrochemical dependent, have done well through the oil recession, with steady rent growth and even record collections, while western submarkets that are more oil-dependent, have suffered declines.

With the recent depression of rents, a slowdown in deliveries and the potential for energy sector recovery, there may be value in Houston for the patient investor, advises Burns. If oversupply and lack of job growth were primary drivers, then the slowdown in deliveries and steady recovery of the oil industry could bode well for those who buy now.

Burns points out while there has not been any relaxation of cap rates, there has been rent depression in the class-A space. This lowers current NOI and in turn, may produce a discount to future value. Class-B properties have felt minimal impact and if the trend continues, those properties could produce steady returns with strong rent growth into the future.

“Nobody has a crystal ball, but Houston could have the jobs and the population to eventually absorb the current and future deliveries,” Burns tells GlobeSt.com. “Everybody needs a place to live and you can't beat Texas.”