How Long Will Houston's Multifamily Post-Harvey Bounce Last?
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Thousands of displaced homeowners in the aftermath of Hurricane Harvey resulted in a quick turnaround for the struggling multifamily sector. Houston posted more than 9,000 units of positive net absorption in Q3 alone, according to CoStar data. That is the largest single quarter of net absorption in Houston since 2000.
But multifamily investors and developers are worried the market’s rebound may disappear just as quickly.
Allied Orion Chief Investment Officer Ricardo Rivas is behind multiple projects in the lease-up stage, like Eighteen25 in Downtown, and said activity has been blistering.
“We’ve seen an uptick in velocity. We were doing about two-three leases a week, now we’re looking at five-six, but we’re still giving away concessions,” Rivas said at Bisnow’s Houston Multifamily Mixed-Use Conference.
Houston’s demand spiked in the last month, compressing vacancy by 100 basis points in September while rent growth took off. Asking rents across Houston (all asset classes) have grown by about 2.5% since the storm made landfall on Aug. 25, and that rate is even higher among high-end properties, where rent growth since that date is about 3.5%.
Despite Houston’s significant rise in occupancy and rent, institutional investors and equity partners still view the market with cautious eyes.
“I’m not so sure the equity partners that we worked with will be rushing back to Houston any time soon,” Greystar Executive Director Stacy Hunt said. “People are still concerned about the market. It will be interesting to see how the high-rises lease up. They’re all [in] that critical phase.”
How long Houston’s multifamily bounce will last is the million-dollar question. The pipeline is slowing, and the market propelled forward about 18 months in one month’s time, but ultimately fundamentals depend on how long residents are out of their houses. A year is likely a safe assumption, the panelists said, because there is an uptick in labor and construction costs, so some could choose to wait that out.
“From a lender’s perspective, agencies are going to look at more historical information. They’re not going to annualize September. They will look at T-12’s and understand this isn’t something that’s going to last,” Hunt Mortgage Group Vice President John Sloot said.
“We’re going to have to see some trades for the equity guys to come back,” Alliance Residential Managing Director Cyrus Bahrami said. “There’s been some value-add or buy-below-replacement, but for developers like me to be able to convince capital to come back, we’re going to need some quality trades.”
Bahrami, behind the redevelopment of the Heights Waterworks, is also worried about supply reappearing.
“There’s a lot of unknowns on both the income and the cost side. Harvey took 15,000 units off the market, what happens when they come back online in nine months?”