Headlines in 2016 were rough for Houston's multifamily sector. This year is a different story.
"There's no shortage of interested investment buyers. On Jan. 1, it was like the light switched flipped on," Colliers International senior vice president of Houston multifamily Matt Guse said.
In 2016 it was easy to write off Houston; investors felt better about putting their money into other markets, like Dallas. Guse said his phone is ringing again. People are finally realizing it did not get as bad as everyone thought. Oil has stabilized and the negative headlines have waned.
"Everyone is looking for something they can improve. Class-A rents have hit the bottom and are moving upward, Class-B has also hit the bottom and is trending upward," said Guse, who worked with Market Track to assemble the data.
The Class-C market is still in question though. Guse thinks the market has bottomed out, but he has not seen an upward trend in rents yet.
"I think it will trend pretty quickly there. What last year taught us is that high-paid and high-skill jobs left with oil, but what replaced them are tenants that fill Class-B and C units," Guse said.
So where is rent growth the hottest? Northwest of Downtown along I-10, including areas of Jacinto City, Cloverleaf and Channelview. The area leads the entire Houston MSA with rents increasing at an annual rate of 9.2%. Pearland is also a bright spot, with rents increasing 5.6%. Lastly, the Inwood area on the Northwest side along Highway 24 inside Beltway 8 is experiencing 2.8% rent growth.
Guse is bullish on B and C: "They don't make any more of it, and I think employment growth for that class of renter will be strong."
He is worried the bulk of Class-A deliveries may seesaw rent growth on its way upward, but it has bottomed out.
Overall occupancy in Houston stands around 88%, according to apartmentdata.com, below the national average of 94%. The problem is the bulk of Class-A, which is 79% occupied.
Who is going to fill all these multifamily units? Lots of Californians. According to the Texas Association of Realtors' Relocation report, California sent 65,000 residents to Texas in 2015. Florida sent 33,000.
With Texas population forecast to grow by 2.3 million over the next five years, the demand for existing B and C class product should not only support, but push, occupancy and rents.
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