After a slow 2019, multifamily developers in Houston are poised to deliver nearly 17,000 units in 2020, double the delivery volume of last year. For America’s fourth-largest city, the rapid rise in deliveries is a return to form, rather than a surge forward.

“We only had around 8,000 deliveries last year, that’s a very low number for the Houston [area],” Berkadia Senior Managing Director Ryan Epstein said. “We’re starting to get back to normal. Seventeen thousand units is not a big number on the base, but we’re coming off a very low number of deliveries.”

One major reason for developer confidence is that in 2019, apartment demand significantly outpaced inventory expansion, elevating occupancy 110 basis points year-over-year to 94% by the fourth quarter of 2019, according to Berkadia research. At the same time, Greater Houston's effective rent advanced 0.5% to $1,113 per month by year-end.

Houston’s continued job growth despite an oil downturn has kept the area’s multifamily market active. As of November, Houston added 85,500 jobs year over year, a 2.7% increase. It was the 25th consecutive month that Houston’s job growth exceeded the national rate, according to JLL research. The job growth has earned Houston its fourth consecutive quarter of positive net absorption for the first time since 2015, signaling a rebound from Houston’s slow months following the start of the oil downturn. The 14,025 units recorded in 2019 is the highest number absorbed since 2014, excluding the temporary boost after Hurricane Harvey.

Much of the new development is in the suburbs.

“There’s been an immense amount of road construction in places likeKaty, Spring and Tomball. People are really focused on that market and are seeing a lot of rent growth in western portions of the city,” Berkadia Senior Managing Director Tucker Knight said. “The part that’s different is that it’s not as concentrated in the Inner Loop. There’s more garden-style communities and a lot of developers are pursuing attainable housing, going after the renter in the $1.30-$1.40 per SF range.”

With strong in-migration and employment growth, leasing activity is forecast to remain positive in these submarkets, though trail the influx of new supply. The imbalance is estimated to result in average apartment occupancy lowering 50 basis points to 93.5% by year-end, according to Berkadia. That is still 10 basis points higher than the five-year occupancy average.

Meanwhile, Houston’s Inner Loop is making headlines as the area becomes more dense as rising land prices drive the development of mid-rise, high-rise and wrap-style communities.

“Because all the big sites have been spoken for, stuff in the Inner Loop is getting denser. I’m hard-pressed to find wrap-style communities anymore,” Epstein said. “It’s more expensive to build, so they build taller because they need higher rent rolls. They’re still chasing that renter by choice demographic, but it's getting much more expensive.”

High construction costs have many investors interested in Houston’s multifamily market turning toward acquisitions, attracted by deals below replacement costs. Capital continues to chase Houston deals with more than $5.5B in multifamily assets trading hands in 2019, higher than the market’s $4.5B historical average.