HOUSTON (By Dale King) – Apartment demand in the Houston metropolitan area strengthened in early 2017, according to a multifamily housing report. Residents leased a substantial number of units during the first quarter, producing a net absorption of 4,916 apartments — surpassing the 4,423 units absorbed during all of 2016, per Berkadia’s Q1 2017 Houston Multifamily Report.
Rental activity was particularly strong in the Westpark/Bissonnet submarket, which recorded the highest occupancy in the region at 94.3%.
“A lot of product was priced to move,” said Ryan Epstein, senior managing director of Investment Sales in Berkadia’s Houston office, in comments to realtynewsreport.com. “There is more traffic in the city. More traffic, more demand.”
Despite rising demand, Greater Houston’s overall occupancy rate fell to 88.3% by March 2017 because apartment inventory increased, Epstein added.
“We’re absorbing more apartment units than we thought we would, and that’s a good indicator we’re heading toward a more balanced market,” he said. “If this level of absorption continues, it’s quite possible we’ll turn a corner and landlords will regain some pricing power in 2017.”
During the first quarter of 2017, the report notes, developers delivered 5,903 new apartments. These additions were distributed across the region, with the Montrose/Museum/Midtown submarket contributing the largest share.
These dynamics are also drawing multifamily investors back to Houston,
Epstein reported increased interest in multiple-unit listings, with more tours and more competitive bids than in the previous year.
On the financing side, falling interest rates and the gradual return of life companies and other lenders to the Houston market are driving transactions, especially refinancings, according to Berkadia Senior Managing Director Tucker Knight.
“The general tenor among the lending community is that Houston is on the rebound,” Knight said. “Fannie Mae and Freddie Mac remain extremely active, and while life companies are cautious, they are much more active than in late 2016. Rates have dropped roughly 30 basis points in recent weeks, which dramatically improves cash flows on acquisitions and refinancings — it makes many deals feasible.” He added that banks have been waiting for occupancy to stabilize before allocating more capital.
The Berkadia report notes that apartment demand was strong at the end of 2016 and kept pace with new multifamily inventory into 2017. With occupancy holding, apartment owners raised rents about 0.9% in the first quarter, bringing the average asking rent to $976 per month by March. Knight believes there is still room for rent growth, supported by steady job gains and millennials who prefer apartment living entering the market.
Both Epstein and Knight said they were somewhat surprised by the strength of apartment demand in the first quarter, since the third quarter typically shows the largest gains. They attributed the early surge partly to a post-election rebound as consumers reacted to the national political outcome and to a roughly 30% recovery in oil and gas prices.
Still, employment results were mixed across sectors. Greater Houston’s unemployment rate stood at 5.6% in January 2017, slightly higher than a year earlier.
Epstein expects apartment demand to remain stable in the near term. “There’s nothing to stop it,” he said, barring unforeseen events.
Inventory will continue to expand in the short term: construction was underway at 44 multifamily communities during the first quarter, and builders were on schedule to add 10,631 units by the end of the following year, the report states.
Berkadia is a joint venture between Berkshire Hathaway and Leucadia National Corporation that provides services to the commercial real estate industry, including multifamily property clients.