HOUSTON – Houston’s multifamily market is expected to struggle through 2017, with upscale Class A properties facing the most pressure, according to speakers at the Houston Apartment Association’s State of the Industry breakfast held last week.
Bruce McClenny of Apartment Data Services identified the weakest areas as Class A properties in Montrose, Downtown, the Galleria district and the Medical Center. He attributed the softness to several converging factors: anemic job growth, the energy sector downturn and an influx of new construction. Roughly 58,000 apartment units have been completed across the region during the past three years, creating excess supply in the market.
“We still have too much supply,” McClenny said, summarizing the current imbalance between new inventory and demand.
Ian Douglas, COO of Allied Orion Group, noted that his firm will finish four multifamily projects this year. He is cautiously optimistic because oil prices have nearly doubled compared with a year ago, but he warned that absorption will likely fall short of what the market needs to stabilize. If Houston could absorb about 10,000 units this year, the outlook would improve markedly, Douglas explained; however, he expects absorption closer to 5,000 units in 2017.
As a result, rents in the Class A sector are projected to remain soft throughout the year. Class B and C segments, which enjoyed stronger performance in recent years, are also likely to see some cooling.
Despite current headwinds, several panelists said the market shows signs of recovery and pointed to a potential turnaround in 2018 if job growth and leasing activity pick up.
“We are still concerned. But we are starting to see some bright things happening,” said Stacy Hunt of Greystar, who served as moderator for the HAA discussion. Hunt added that investor interest in Houston apartments remains healthy: many buyers are pursuing value-add opportunities, though institutional capital has not yet returned fully to Class A assets.
Swapnil Agarwal of Nitya Capital—an investor that has acquired about 8,000 value-add units over the past two years—highlighted Houston’s steady population growth as a long-term strength for multifamily investing. He said strategically upgrading Class C properties and applying strong on-site management can drive higher rents and improve renewal rates.
“The U.S. is still a very attractive place to invest,” Agarwal said. “Going forward, we will continue to be very aggressive. We are excited to be in Houston.”
Feb. 13, 2017 Realty News Report Copyright 2017