Houston Multifamily Market Report – July 2023
Houston remains one of the fastest growing cities in the nation, as population and migration growth continue to expand the market. However, for several years, the Space City is and has been one of the most popular markets for new apartment development. As such, Houston has typically maintained a lower occupancy rate than the national average and rent growth has tended to be slower than many other secondary markets in recent cycles. New supply is once again a major issue, and despite strong demand displayed through promising traffic and leasing data, the overall apartment performance remains soft, and will likely continue declining for the foreseeable future. Add in the environmental risk of hurricanes and damaging storms, which drive up operating and insurance costs, and the Houston apartment market faces some significant threats in the coming years.
Net effective rent and occupancy have dropped substantially across the Houston metro over the past year. Not only are fundamentals weakening, but the average rent and average occupancy rate are already well below the national average. The leading indicators are showing signs of sustained interest in the market; however the strong demand cannot keep up with the onslaught of new supply.
Traffic and Leasing
Houston ranks second among all markets tracked by Radix Research in terms of traffic, with properties averaging 11 tours per week at the beginning of July. Properties are signing 3.5 new leases each week, putting the Houston market among the top in this category as well.
The Montrose/River Oaks submarket leads all Houston submarkets with the average property receiving nearly 14 tours each week. Just to the south, the Braeswood/Bellaire submarket is also receiving significant traffic, as properties average more than 13.5 tours per week. Both submarkets have seen traffic increase on an annual basis, indicating steady demand in the urban submarkets just to the west of downtown Houston.
Moving slightly further west, the Briar Grove/Westchase submarket leads all submarkets averaging 4.5 new leases signed per property each week, followed closely by Spring Branch.
The western suburbs and close ring urban neighborhoods have long been the most sought-after areas of Houston and continue to perform well from a demand perspective.
On the contrary, the Cloverleaf/Channelview submarket on the east side of Houston, is one of the weaker performing submarkets in terms of demand, averaging only 7 tours per property and 2.1 leases signed per week.
Occupancy and ATR
Occupancy in Houston has been struggling, with an overall market occupancy rate of 93.5%, roughly 75 basis points below the national average.
In total, 8 submarkets in Houston maintain occupancy levels below 93%, including some of the weaker submarkets for traffic and leasing such as Northborough/Cranbrook and Cloverleaf/Channelview.
The strongest occupancy is in Sharpstown/Westwood, as the average occupancy in the submarket is nearly three percentage points higher than the metro average.
The average property across the Houston MSA has 16 apartments available to rent in the next 60 days.
While traffic and leasing are strong in the Montrose/River Oaks submarket, it also maintains one of the highest number of units available to rent. There is ample new supply delivered recently in the submarket and with even more units in the construction pipeline, occupancy and ATR will likely continue to struggle.
Net Effective Rent and Concessions
The average rent in Houston is $1,488 per unit, nearly $400 below the national average. Houston has long been an affordable market, but based on the size of the city, the recent population growth and the magnitude of the economy and employment market, it is surprising to see rents so far below the national average.
Not only are rents affordable, but the average apartment rent has dropped 1.8% over the past year, making it one of the weakest markets for rent growth in the nation.
On an annual basis, five submarkets have experienced rent declines of 5% or more. Brazoria County rents are down nearly 7.5%. Other submarkets including Clear Lake/NASA, Briar Grove/Westchase, and Cloverleaf/Clearview, also have rapidly falling rents. These markets face a challenging future as both leading and lagging indicators are among the weakest in the metro.
Concessions have increased 23% market wide in the past year.
Only a handful of submarkets have seen concessions fall, while concessions in 6 submarkets have doubled or more in the past twelve months.
- Houston’s economy is one of the largest in the country and has been diversifying in recent years. Once dominated by the petroleum and petrochemical industries, Houston now has a robust health care industry and a sizable professional and business services sector.
- The unemployment rate in Houston is 4%, which is slightly higher than the national average.
- Jobs are still being added at a strong clip, as more than 111,000 jobs have been added in the past twelve months. However, in April, the Houston employment market lost 13,500 jobs.
- The Houston apartment market is struggling but it’s been buoyed by continuous job and migration growth. If the employment market were to slow down substantially in Houston, the existing vacancy, plus the delivery of new supply, could have catastrophic effects on apartment fundamentals.
Not only is Texas one of the friendliest places to do business and develop real estate, but the City of Houston does not have a formal zoning code. These factors have combined to make Houston a perennial leader in new home and apartment construction. Houston often rivals Dallas and a few other markets for the largest construction pipelines.
Houston currently has nearly 250 projects in various stages of development and construction. While some of the projects in the planning phases may fall out of the pipeline, those that are already under construction will likely finish, adding even more supply pressure on strained submarkets.
As insurance and operating costs rise, property managers are finding it harder to meet net operating income estimates. With rents cooling, NOI challenges are only increasing, and there is little hope in sight for a turnaround.
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