TEXAS SNAPSHOT, JULY 2012

HOUSTON MULTIFAMILY

Currently, the Houston multifamily market is in the best shape that we’ve seen in a long time. For example, rents are increasing across the board, particularly in Class A properties. In addition, occupancy is at its highest point in years. We’re still trying to backfill supply into a market that has seen historically low deliveries during the last three years, and Houston is creating serious demand for new units. We use the rule of thumb that for every six or seven new jobs created, there is demand for one new apartment. Thus, Houston has added more than 90,000 jobs in the last 12 months, which tells us that we need to add 12-15,000 units annually just to keep up with current demand. So, all in all, Houston’s multifamily market is healthy right now.

There are a variety of trends impacting the multifamily market in Houston. For example, tightening occupancy and low supply are driving concessions out of both urban and suburban markets. We will see increased supply in the next 18 months, but we will be lucky to build enough product to meet demand during that time. Development capital is available for quality infill sites, but investors are still being appropriately careful with their choice of sites and sponsors, which we believe will foster a long, healthy development cycle here. As for leasing activity, given how much demand there is for Class A apartments right now, most owners seem to be focusing on delivering a better leasing and living experience via thoughtful design of common area spaces and amenity programming, rather than offering substantial rental concessions.

The most recent trend we are seeing is that investor focus may shift to suburban development by the end of this year. Some recently completed projects in the Houston market include Alta Woodlake Square — a 256-unit infill project in the Westchase District at the intersection of Westheimer and Gessner, which is part of the Woodlake Square Shopping Center. Another recently completed project is Alta Heights — a 256-unit multifamily community project just north of the intersection of Heights Boulevard and Washington Avenue. Residents will have walking-distance access to dining and entertainment in the Washington Corridor.

The submarkets in Houston that are considered the hotspots for new development are the West Inner-Loop, the Galleria, Midtown, the Heights and Katy. These areas are all seeing positive activity right now. Not surprisingly as these markets are the parts of town where we’ve seen the most rent growth and highest occupancies during the last 12 to 18 months. In the coming year, these markets may continue to see new development activity, but likely at a more moderate pace. Strong rent growth is occurring in most of Houston’s submarkets now, which opens the door to new development in other areas.

— Todd McCulloch is a regional director in Wood Partners’ Dallas office and Todd Gaines is an associate director in the firm’s Houston office.

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