TEXAS SNAPSHOT, DECEMBER 2007

Houston Multifamily Market

Austin

In the infill areas of Houston, multifamily developers are building mid- to high-rise rental units that may have retail components attached to the development. These are typically four to eight stories with structured parking to maximize unit density coverage. Finishes are granite countertops, stainless appliances, 10-foot ceilings, wood floors and state-of-the-art amenities (such as high-tech fitness facilities, massage and tanning features and Internet cafes). In the suburbs, the trend is still toward three-story walkup, garden-style developments with direct access and attached- and detached-garage parking. These developments feature nine- and 10-foot ceilings, faux-wood flooring, washer and dryer hookups, and large leasing/entertainment facilities.

In the area just west of downtown, the ZOM Companies have developed the Bel Air, a 431-unit, four-story mid-rise development with unit sizes of almost 1,200 square feet and rents averaging more than $2,000 per month. A Texas developer, Koontz McCombs, is midway complete on a 404-unit development in the same area called City Vista, expected to be complete in June 2008. It will have smaller units (averaging in the 950-square-foot range) and will have average rents closer to $1,600 per month. Both properties feature exotic common-area amenities and extravagant leasing and entertainment facilities. The most active suburban developer is Davis Development out of Georgia. Davis has built seven suburban properties in the last 2 years totaling about 2,000 units and has another half dozen slated for the next 24 months. Most of the Davis properties feature direct-access garages, individual metered water to each unit, and larger-than-average unit sizes for the suburbs (between 1,150 and 1,200 square feet).

There is a lot of development taking place in the core areas of downtown, midtown and just to the west of downtown and in the highly concentrated job growth areas, such as the Galleria, Greenway Plaza and the Medical Center. Areas to the far west of town, such as in between the 610 Loop and Katy, also are very active.

According to O’Connor and Associates’ November of 2007 report for Apartment Market Statistics, the overall market surveyed included 500,055 apartment units in 2,456 properties. The average rental rates ranged from $0.607 per square foot equaling $533 a month for a Class D property; $0.697 per square foot equaling $564.12 a month for a Class C property; $0.822 per square foot equaling $666.68 a month for a Class B property; and $1.133 per square foot equaling $1,070.32 a month for a Class A property.

From the same O’Connor report, overall citywide vacancy rates are 10.81 percent physical vacancy and 9.5 percent pre-leased vacancy. On a pre-leased basis, Class A units are averaging 6.48 percent vacant; Class B units are averaging 8.5 percent vacant; Class C units are averaging 12.98 percent vacant; and Class D units are averaging 13.12 percent vacant.

The corridor that will continue to be the most active will be the Katy Freeway Corridor, which connects downtown to the far west part of Houston. This is connected by Interstate 10 West, which has been undergoing massive redevelopment from a nine-lane freeway with four access lanes (two going in each direction) to a future freeway system that will feature up to 26 lanes of freeway, HOV (high occupancy vehicle) and access lanes. This has skyrocketed property values on and near the interstate and has fueled new developments all along this corridor from downtown all the way to Katy (a distance of about 20 to 25 miles)

According to the O’Connor statistical report mentioned above, there are approximately 22,114 apartment units under construction with another 17,786 apartment units in the proposal stage. Because the population and job growth for the area is still in high gear and at very high numbers, development should remain at close to a status quo level. Amenities and finishes in all apartments (suburban and infill) should continue to improve for residents as the competition for their rental dollar remains brisk.

— Gregory W. Austin is associate partner with Hendricks & Partners in Houston.

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