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Climbing Again? – Houston Multifamily Market Gained Traction in First Quarter

Ryan Epstein

Ryan Epstein

HOUSTON (By Dale King) – Apartment demand in the Houston metropolitan area increased in early 2017, a multifamily housing report says. In fact, residents leased a significant number of units, resulting in a net absorption gain of 4,916 apartments during the first three months of the year, exceeding the net of 4,423 units absorbed during all of 2016, according to Berkadia’s Q1 2017 Houston Multifamily Report.

Rental numbers were strongest in the Westpark/Bissonnet submarket where occupancy was the highest in the metro region, 94.3%.

“A lot of product was priced to move,” Ryan Epstein, senior managing director, Investment Sales, in Berkadia’s Houston office told “There is more traffic in the city. More traffic, more demand.”

Even with this growth – which suggests supply-demand equilibrium is in sight – the occupancy rate decreased to 88.3% in Greater Houston by March 2017 due to an increase in apartment inventory, said Epstein.

“We’re absorbing more apartment units than we thought we would, and that’s a good indicator we’re heading toward a more balanced market,” he said. “If this level of absorption continues, it’s quite possible we’ll turn a corner and landlords will regain some pricing power in 2017.”

During 2017’s first quarter, says the report, 5,903 new apartments were delivered. While these additions were spread out, the Montrose/Museum/Midtown submarket led the way.

These dynamics are also luring multifamily investors back to Houston, according to Epstein, who said his multiple unit listings are generating more tours and bids than last year.

On the finance side, a decline in interest rates, along with the return of life companies and other lenders to Houston – is driving more deals, particularly refinancing, said Berkadia Senior Managing Director Tucker Knight.

“The general tenor among the lending community is that Houston is on the rebound,” said Knight. “Fannie and Freddie Mac remain extremely active, and while life companies are cautious, they are exponentially more active than there were in the latter part of 2016.  Rates have plummeted 30 basis points in the past few weeks, so that dramatically impacts cash flows on acquisitions and refinancings – it makes a lot of deals work.” Knight said banks have been waiting to see occupancy stabilize before freeing up capital.

The Berkadia report says demand for apartments was strong at the end of 2016 and “kept pace with multifamily inventory growth” into the new year. With occupancy holding, apartment owners upped rents about .9% in the first quarter 2017 to $976 a month by March. But Knight said there is still room to increase rental payments, particularly with job growth still strong and millennials who “want to live in an apartment” moving into the market.

Both Epstein and Knight appeared surprised that apartment demand showed such strength in the first quarter of the year. Both said the third quarter normally displays the biggest gains. They did note that the early 2017 market was motivated by a post-election surge from people waiting to see which party captured the White House and by a rebound of about 30% gain in gas and oil pricing.

Still, “with mixed results among the employment sectors, the Greater Houston unemployment rate was 5.6% in January 2017,” up slightly from the year before.

Epstein said he expects apartment demand to hold, at least in the near future. “There’s nothing to stop it,” he said, barring the unforeseen.

Houston apartment market inventory will continue to grow in the near term, says the report, as construction was under way on 44 communities during the first quarter of 2017. “Builders were scheduled to bring 10,631 units online by the end of next year.”

Berkadia, a joint venture of Berkshire Hathaway and Leucadia National Corporation, deals with the commercial real estate industry, offering services to multifamily and commercial property clients.

April 27, 2017 Realty News Report Copyright 2017

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