HOUSTON – (Realty News Report) – Hurricane Harvey accelerated multifamily housing absorption in Houston and pushed rental rates higher, according to a new analysis by global real estate firm CBRE.
“A rapidly shrinking construction pipeline—with fewer than 7,700 units underway—and reduced inventory caused by flooding are tightening supply further. Meanwhile, demand from displaced single-family residents, contract workers, and natural population growth is shifting leasing momentum toward landlords,” said Robert C. Kramp, Director of Research & Analysis for CBRE’s Texas-Oklahoma Division.
Kramp observed that, before Harvey, multifamily absorption in Houston was already outpacing deliveries by nearly 2,000 units through August 2017. The hurricane effectively accelerated that trend by roughly 18 months. In the storm’s aftermath, multifamily occupancy tightened by about 120 basis points and rents rose roughly 1.5 percent, according to Apartment Data Services. New unit deliveries are expected to decline significantly in 2018.
CBRE’s occupancy models prepared before Harvey projected a steady recovery in occupancy through 2020, with occupancy reaching around 90 percent between 2018 and 2019.
Demand from displaced renters and people seeking temporary housing surged after the storm, Kramp said. Preliminary estimates from Apartment Data indicate Houston’s multifamily occupancy climbed to 90.1 percent. “Harvey effectively sped up the multifamily recovery timeline, moving Houston into a landlord-favored market about 18 months ahead of schedule,” Kramp noted. “The jump in occupancy spurred by Harvey is likely to persist. Moreover, many rental concessions have expired. A reduced development pipeline combined with ongoing recovery-driven demand should continue to press vacancy downward.”
Kramp added that CBRE expects long-term behavioral shifts could result from the disaster. “The risk of future flooding and the potential loss of home equity after another comparable storm could create a new segment of permanent renters. For instance, older homeowners considering apartments now have additional incentives to transition from owning to renting,” he said. “This change in housing preference can bring several benefits, including reduced maintenance responsibilities, potential tax advantages, and physical separation from future flood risks.”
Housing stock was severely affected in some parts of Houston, with an estimated 72,000 single-family homes damaged or destroyed. By comparison, the city’s apartment market experienced less damage than initially feared: Apartment Data reported roughly 10,600 multifamily units impacted.
“The Texas Department of Public Safety estimates that about 3.3 percent of the Houston metro’s housing inventory suffered minor damage—homes that could be habitable within 30 days after repairs—while destroyed residences amount to approximately 0.1 percent of inventory,” Kramp said. “Overall, the multifamily market fared better in many submarkets, with market-wide damage limited to roughly 10,600 units, or about 1.7 percent of Houston’s total multifamily inventory.”
Preliminary damage assessments show the hardest-hit multifamily submarkets were in the Northeast, where about 5.1 percent of inventory was damaged. Notable areas included Greenspoint, Lake Houston/Kingwood, Northeast Houston/Crosby, and I-10 East. Other heavily affected submarkets were those closely tied to Houston’s bayou system, such as the Medical Center/Braes Bayou, Almeda/South Main, Energy Corridor, and Bear Creek, CBRE reported.
Before the Category 4 hurricane made landfall in Texas on August 25, some Class A apartment communities were offering two or three months of free rent as leasing incentives. Those concessions largely disappeared after the storm as the market shifted and landlords faced a new operating reality.