May 11, 2017
Houston’s multifamily market is working to rebalance following an influx of new units to the market over the last three years. However, recovery may come sooner than originally thought thanks to a diminished development pipeline, strong first quarter absorption, and positive population and job growth.
Here are three things to know about Houston’s multifamily market right now.
1. Supply outpaces demand by 4 to 1 ratio over last year but offers slight improvement from the previous quarter.
In the last 12 months, more than 26,588 multifamily units were delivered in Houston. Currently 10,600 units remain under construction across the metro, representing a decline of almost a third, quarter-over-quarter.
The first quarter of 2017 saw a notable uptick in demand with 4,916 multifamily units absorbed, an impressive showing given only about 10,000 multifamily units were absorbed in all of 2016.
For now, concessions are still trending upward with the average special at -8.6 percent. However, concessions should decrease as this cycle progresses and the market approaches equilibrium later next year.
2. Class A fundamentals continue to take a hit as construction pipeline delivers new units to market.
While the city’s Class B and C multifamily sectors have retained fairly stable occupancy, the Class A sector has steadily trended downward in recent years. Class A occupancy was 77.8 percent in the first quarter, down 40 basis points from year-end 2016. The sector has acted as a drag on overall multifamily fundamentals, resulting in four consecutive quarters below stabilized occupancy of 90 percent. The city’s total multifamily inventory of approximately 633,000 units currently sits about 88.3 percent occupied.
The Class B and C markets are maintaining healthy occupancies at 91.7 percent and 91.3 percent, respectively, but face downward pressure on fundamentals while Class A struggles.
3. Population growth is second-highest in U.S.
The good news is, despite local economic headwinds, people are still moving to Houston in record numbers. According to the U.S. Census Bureau, Houston added 125,005 residents in the 12 months ending July 1, 2016. Much higher than expected given the metro’s job losses. Moreover, Houston remains an international destination. More than 28,000 people moved to Houston from abroad in 2016.
While well off the pace of the 2011-2014 boom years, Houston job growth is expected to trend upward in 2017 and 2018, which will support additional population growth and benefit the multifamily sector.
Population and job growth will only help the sector, but there is still a lot of ground to make up before a healthy balance is re-established between supply and demand.
Click Here to learn more about JLL’s multifamily capabilities in Texas.