Despite Demand From 2 Generations, Apartment Developers Are Being Cautious
Baby boomers and millennials are sparking demand for multifamily development in Houston and throughout the country, but developers locally are treading carefully, Avison Young principal and Managing Director Rand Stephens wrote in a November blog.
The two generations want "care-free, amenity-rich condo/apartment environments." While on opposite ends of the age spectrum, they both seem to prefer the conveniences and concierge services offered in an apartment community, which is driving continued demand.
Several multifamily developments are on the way in growing submarkets like The Heights, Midtown and Downtown. In Downtown alone, the number of residents skyrocketed from 3,800 to more than 8,000 in a five-year span. It is the hottest submarket in Houston, on pace to deliver 2,000 units this year, according to Marcus & Millichap's quarterly multifamily report.
Westchase is marketing to baby boomers and millennials as a community with it all: affordable housing, convenient access to the major thoroughfares, parks and trails, and a host of restaurants and shopping centers.
Even senior living developers are adjusting design, accommodations and services for the next line of residents. They expect demand for high-rise independent living developments in more urbanized areas.
But this year has marked a slowdown in new unit deliveries, with only 13,000 delivering year to date. During the last 12 months, completions dropped by about 50% compared with the previous year, according to the report. Vacancy stands at 6.2% for Q3 2018, which is a year-over-year increase from 5.8% as residents who temporarily moved into apartments after Hurricane Harvey relocated back out.
An additional 6,000 units will deliver by year-end, which will increase vacancy but not past the 7% mark after the 2014 oil bust.
Several key indicators that support more apartment projects include the strong economy, population growth, a high employment rate and a target demographic ready to move in, Stephens wrote in the post.
But lenders are being cautionary, he wrote.
"They do not want to see oversaturation of the market and have a repeat of 2015-16. Continued rental rate growth is the key for new development but what the market can afford is the key question."
Historically, Houston has touted rent more affordable than other major metros. However, some experts believe that, while stagnant this year, rental rates will go up next year.