Hurricane Harvey Still Buoying Houston's Multifamily Market
Displaced victims of Hurricane Harvey gave Houston's multifamily market a much-needed shot in the arm. Now, months after the storm, renters are beginning to return to their homes, causing many to wonder if Houston's multifamily struggles will come rushing back.
“There's every reason to believe that for every Harvey renter moving out, there’ll be someone moving to Houston that moves in,” Colliers Multifamily Senior Vice President Matt Guse said. "The migration and job numbers for Houston look good for demand."
Occupancy increased by 1.1%, with only 11 of the 42 submarkets posting a decline in occupancy. Class-B properties continue to record the highest occupancy among the class groups, averaging 91.8%. Class-C assets averaged 89.8%, Class-D assets 87% and Class-A assets 86%. Class-A occupancy has increased dramatically from the end of 2016 when it was 78.7%.
Last year’s absorption of 17,491 units was Houston’s highest in a decade. The Med Center, Greenspoint and Uptown posted the most gains. As the construction pipeline winds down, the metro will be given a chance to absorb some of the excess units on the market, boding well for strong absorption throughout the year.
Asking rental rates have ticked up by 1.5% to $1,014 per unit. With the sudden demand created by the impacts of Hurricane Harvey, 37 of the 42 submarkets reported an increase in rent. Submarkets with the highest rental rate growth quarter over quarter were Energy Corridor, Inwood and the Woodlands. Concessions are improving, with 31% of the market reporting concessions (down 10% from the third quarter) and the average special provided at 7.3% of total rent.
"Many concessions went away late last year after Harvey, but I've seen concessions come back in some submarkets," Guse said. "We were in a heavy concessions cycle, now we're more in a normalized concession cycle."
The investment sector has shown signs of an upturn, which means that developers will have their eyes on new development opportunities and chances to acquire value-add properties to add to their portfolio.
"Buyer activity has increased; Houston is back on people’s radar," Guse said.
Unscathed properties in areas where flooding due to Harvey was prevalent have already seen a surge in demand and significant premiums to their trade price. As the sector continues to improve and brings the spread between bid and ask into better focus, there will be additional investment opportunities.
“The outlook for Texas multifamily investments this year is very positive, and the capital market remains robust for both sellers and buyers,” Institutional Property Advisors Executive Director Will Balthrope said. “Debt and equity are readily available and long-term, risk-adjusted returns for multifamily assets in large markets such as Dallas-Fort Worth, Houston, Austin, San Antonio and smaller, secondary markets throughout the state are outstanding.”
Economists are optimistic about Houston’s prospects. The Greater Houston Partnership and Federal Reserve Bank of Dallas estimate between 45,000 and 75,000 jobs will be created across the region.
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