‘Like A Light Switch That Went On’: Houston Multifamily's Recovery From Pandemic Woes In Full Swing
After the tumultuous year that was 2020, Houston’s multifamily sector is in the midst of an impressive comeback. The market has absorbed more than 23,000 apartment units over the past 12 months, data from ApartmentData.com showed. Around 15,000 of those units, or 65%, have been absorbed since just the start of 2021.
Only the aftermath of Hurricane Katrina in 2005 led to a comparable number of people actively looking to lease apartments in the greater Houston area, according to ApartmentData.com President Bruce McClenny.
“That 23,000 dwarfs everything for the last 12 years,” McClenny said.
Houston absorbed 4,668 units during the first quarter of 2021. But things seriously began to take off at the beginning of the second quarter: During April and May, the city absorbed 10,249 units. In comparison, Houston absorbed a total of 11,493 apartments for the full year of 2020 and 14,215 in 2019.
Those absorption figures are even more impressive when considering that 80 new Class-A and Class-B multifamily buildings, or around 22,000 new apartment units, delivered over the past 13 months.
“When absorption equals or is better than the number of units open, that is an incredibly good sign,” McClenny said.
Strong absorption rates typically translate into high occupancy levels, and in Houston, average occupancy levels are now higher than they were pre-pandemic. Class-A occupancy averaged 82.8% in March 2020, and it bottomed out in June at 79.7%. Nearly a year later, in May, average occupancy had rebounded to 84.9%, the highest level since August 2019.
Class-B did not experience the same volatility, reflecting its more affordable rental prices. Class-B multifamily buildings had an average occupancy of 91.5% in March 2020 and only averaged higher throughout the pandemic. In May 2021, occupancy averaged 92.8%.
Camden Property Trust CEO Ric Campo said that in his Houston portfolio of around 9,300 units, average occupancy was 93.4% in the first quarter of 2021, but it has jumped to 95.4% in June. And although June isn’t over yet, he expects to see both new leases and renewals beat May’s figures.
“Every market in America, there was like a light switch that went on — boom, and demand started coming. And Houston was exactly in the same position with that,” Campo said.
Average rent prices have also rebounded. Class-A apartment rents in Houston averaged $1,533 per month in March 2020, before the pandemic caused average prices to drop as low as $1,430 per month in December. Things began to turn around in early 2021, and by May, Class-A rents had jumped up to $1,542 per month.
Class-B apartments didn’t experience the same major drop as Class-A: Prices averaged $1,042 per month in March 2020 and bottomed out at $1,028 per month in May 2020. Prices hovered around $5 above that amount for several months before rapidly climbing to $1,077 per month in May.
Campo said Camden’s revenue has not returned to 2019 levels, but he expects most U.S. markets to regain their footing by the end of the year.
“We'll probably get back to our revenue numbers mostly around the country by the end of the year. Houston probably will take a little bit longer, just because the market was so tough,” Campo said.
Better World Properties Vice President – Operations Michael Knight said that rent prices across his portfolio of mostly Class-B and Class-C workforce housing apartments haven’t fluctuated much over the past year or so because not many people opted to move out of his properties during the pandemic.
“A lot of people stayed put. It was really quite stable in that regard. So we didn't have any pressure to really change rents,” Knight said.
That stability has meant that Better World Properties has not needed to offer many concessions, such as a month of free rent or waiving deposit requirements. Those kinds of offers usually depend on local submarket conditions and can change rapidly, Knight noted.
“What we're seeing at the moment is that we are not having any trouble getting our asking rents, that we are not having to do a whole lot in terms of promotion or concessions, and that we are in fact expecting to accelerate some rent increases that we always hope to have,” Knight said.
There are likely several reasons behind Houston’s apartment rental surge. Campo said Texas Gov. Greg Abbott’s decision to allow businesses to fully reopen in early March was a contributing factor, signaling the beginning of a return to normal. Amid the vaccine rollout, people who chose to hunker down during the pandemic also began to consider moves again.
And new renters, including college-age students and those leaving home for the first time, have begun to enter the market, contributing to Houston’s increase in apartment activity.
The absorption figures could also be indicative of people moving to Texas in 2020, McClenny said. The Houston-The Woodlands-Sugar Land metropolitan statistical area recorded a net increase of 44,347 people through migration for the year ending July 1, 2020, according to new estimates from the U.S. Census Bureau — the biggest net migration increase since 2016.
On top of that, soaring single-family house prices in the greater Houston area could be steering people into apartments, at least temporarily. The pandemic spurred many to consider leaving dense, inner-city areas and move to the suburbs. That trend, coupled with low interest rates, has led to a major spike in prices: The Houston area’s median single-family home price was $304K in May, up by 21.7% from a year ago.
Low inventories and high prices have likely priced some people out of buying a house for the moment, which could be contributing to the rise in apartment activity, according to McClenny.
“I think that there's got to be some extra demand coming from how super-hot the single-family market is,” McClenny said.
Campo said he isn’t so sure; before the pandemic, around 15% to 16% of Camden move-outs were because of people buying houses. That spiked to 18% or 19% at the height of the home buying frenzy and is now at 16% to 17%.
“We've had more people move out to buy houses than we had pre-pandemic, yet my occupancy is 95.6%,” Campo said. “I think there's just more demand released than anybody ever thought, as a result of Covid.”
Summer is usually the busiest period of the year for apartment leasing, and McClenny, Campo and Knight all said they expect the upward trend to continue.
Campo said Camden’s combined revenue growth from renewals and new leases was 1% in April and 3% in May. Based on those figures, he said that he anticipates additional monthly growth of between 5% and 7% over the next few months.
“I think that rent's going to continue to rise at the same trajectory,” Campo said.
Knight said he also thinks leasing activity this summer will be better than usual, owing to the scale of pent-up demand.
“Certainly the pandemic has, let's just say, encouraged many people to make some life changes, a number of which ultimately result in moving into a new place,” Knight said.
McClenny said that although the pandemic has been filled with incredible lows and highs, he anticipates that local reopening fervor will continue through the end of 2021, which should continue to boost Houston’s multifamily sector.
“I'm on the train that this is going to be a year where we would expect this to continue and build momentum through the rest of the year,” McClenny said.