Slowing Multifamily Delivery Doesn’t Mute Demand
Tariffs and other trade-related concerns have created price pressures on new development due to increased input costs, but a positive outlook remains for the Houston metro, with a strong hiring spread.
HOUSTON—With 5% year-over-year rent growth, Houston ranks one of the top rent growth markets in the country, second just behind Tucson (5.1%). In addition, multifamily absorption was almost twice that of deliveries in the first half of 2018, reversing a trend from previous years, according to a Berkadia second quarter multifamily report covering both Houston and U.S.
Other highlights of the report indicate that 7,107 apartment units have been absorbed year to date compared to the 3,836 units that been delivered so far in 2018. Moreover, effective rents increased 5% year-over-year to $1,031 and the area’s occupancy rate rose to 89.9%, up 100 bps since second quarter 2017.
“This is absolutely a recovery story,” says Ryan Epstein, senior managing director of Berkadia Houston. “Houston is one of the top job creation cities in the country, and that’s created strong apartment demand and will create even stronger rent growth for next few years. Our pipeline of new deliveries is paused for now, so that will keep it more of a landlord’s market for a few years to come. The growth in absorption downtown is also impressive. We probably still have a ways to go to absorb all the units delivered over the last couple of years, but there’s no doubt that downtown is going to be a vibrant core market in Houston in the long-term.”
The report also showed that the Inwood/Highway 249 submarket had the MSA’s highest occupancy rate at 94.8%. The downtown submarket displayed an impressive increase in occupancy that reached 78.5%, up from 63.2% one year prior.
“Capital flows continue to remain vibrant and strong for both debt and equity in the Houston MSA,” said Tucker Knight, senior managing director of Berkadia Houston. “We are executing a robust amount of business across all spectrums of leverage and asset quality.”
Accounting for Houston’s strong apartment demand, the report pointed to job growth triggered by DHL’s expanding presence with a new distribution facility in north Houston and United Airlines Inc.’s move to relocate 1,400 employees to a new downtown Houston office.
“As the slowdown in deliveries continues throughout Houston, investment in the multifamily market remains strong, thanks to strong demand that considerably outpaces supply,” Epstein tells GlobeSt.com. “Even though tariffs and other trade-related concerns have created price pressures on new development due to increased input costs, there still remains a positive outlook for the metro area, with strong hiring spread throughout.”