HOUSTON – (By Dale King, Realty News Report) – A new Colliers report shows Houston’s multifamily investment market is heating up again, driven by renewed investor interest and improving market fundamentals.
Following a two-year pandemic slowdown, multifamily investment sales volume in Houston rose 24.1% between the final quarter of 2020 and the start of the first quarter of 2021, according to Colliers’ analysis of Real Capital Analytics data. That quarter-over-quarter increase significantly outpaced the national quarterly gain of just 0.6% in U.S. multifamily sales volume.
Lisa Bridges, director of market research for Colliers in Houston, authored the report and highlights the uptick as evidence of improving local market conditions. Although Houston experienced a year-over-year decline of 42.9% in total volume from Q1 2020 to Q1 2021, the more recent quarterly rebound indicates renewed momentum entering mid-2021.
While Houston’s average sales price per unit remains below the national average, it experienced meaningful growth. The city’s average price per unit climbed 14.4% year-over-year, rising from $126,969 to $145,273. By comparison, the U.S. average per-unit price edged up only 0.4% during the same period, from $173,617 to $174,406.
Occupancy rates are gradually recovering. Houston’s apartment occupancy was 89.1% in Q1 2020, dipped to 88.5% by the end of 2020, and ticked back up to 88.9% in Q1 2021. Total inventory also expanded modestly, growing from 672,749 units in Q1 2020 to 689,718 units at the start of 2021. Units under construction decreased slightly to 16,951 in early 2021 from 17,152 late in 2020, and 23,472 in early 2020.
Industry leaders say the resurgence goes beyond simple pandemic recovery. “In the last 90 days, interest in Houston multifamily has spiked considerably from where it has been for the past 24 months,” said Chip Nash, senior vice president for Colliers in Houston and director of multifamily investment properties, who wrote the report’s executive summary and provided commentary.
Anxious Investors Search for Opportunities
Investors eager to deploy capital are actively seeking multifamily opportunities, and sellers and brokers have responded with a broader set of listings. According to Nash, this expanded supply of offerings has driven pricing higher and compressed capitalization rates compared with the start of 2021. Lower cap rates in competing Texas markets such as Dallas and Austin have pushed some investors to consider Houston, increasing demand and transactions locally.
Nash estimates that up to 75% of properties sold during the year could be purchased by investors new to the Houston market. He also expects growing demand for value-add properties where targeted renovations and unit upgrades can improve cash-on-cash returns, increase occupancy and lift overall asset performance.
29th Street Capital buys Class B Project
One recent example of investor activity is 29th Street Capital’s acquisition of the 224-unit, Class B Lincoln Medical Center Apartments. The privately held firm’s purchase marks its 13th multifamily acquisition in the Houston metro area, bringing its local portfolio to nearly 4,000 units. “The employment boom, combined with continued population growth, will benefit the asset moving forward,” said Doug Burt, 29street Capital’s vice president of acquisitions in Houston.
Population and job growth support the investment thesis. Emsi Labor Analytics reports Houston’s population grew 7.5% from 2015 to 2020, adding roughly half a million residents, and is projected to rise another 7.6% over the following five years—adding an estimated 544,540 people. Employment in the Houston-The Woodlands-Sugar Land area also outpaced the nation, expanding 2.3% from 3,276,633 jobs in 2015 to 3,350,731 in 2020, while national growth was about 1.3% over the same period.
These demographic and employment trends, combined with shifting investor preferences and competitive cap rates in other Texas markets, help explain why multifamily capital is flowing back into Houston. As buyers seek yield and assets that can benefit from renovations and operational improvements, the city’s apartment sector appears positioned for continued activity and recovery.
June 2, 2021 Realty News Report Copyright 2021
Photo: Courtesy 29th Street Capital
For more about Texas development, check out the book Houston 2020: America’s Boom Town – An Extreme Close Up by Ralph Bivins. Available on Amazon.
File: Apartment Investors Returning to Houston