HOUSTON – (Realty News Report) – Almost 20,000 apartment units are under construction Houston area as economic conditions remain strong with job growth high and unemployment low.
According to CBRE, 19,922 multifamily units are now under construction in the Houston area. That represents a significant increase over the 5,077 new units delivered in 2018.
And many more projects – a total of 28,494 units – are on the drawing board, proposed for future construction, CBRE reports. Not all of those proposed projects will actually break ground, but they are an indication of the red hot nature of the Houston multifamily market.
Atlanta-based Wood Partners, one of the largest multifamily developers in the nation, started construction in recent week on two Inner Loop projects – the 304-unit Alta West Alabama, 3623 West Alabama and the 364-unit Alta River Oaks on West Dallas, near Shepherd Drive.
Hines is constructing a 46-story apartment tower in downtown Houston.
“Construction remains strong in Houston’s Inner Loop. The supply of land and construction-appropriate redevelopment sites is tight and the demand enables sellers to receive impressive sales prices,” said Mark Sikes of Deal Sikes, a Houston-based valuation firm. “Some suburban areas that have been limited in years past, such as Clear Lake and Atascocita, are now being selected by multifamily developers. With higher land prices, the trend throughout the area is for developers to construct mid-rise and high-rise multifamily properties.”
Even with the uptick in new apartment deliveries in 2019, the Houston multifamily occupancy rate still stands over 90 percent.
Houston’s year-over-year rent rate growth of just 0.5% lags far behind the Texas state average of 1.7% and the national average of 1.6%, according to Apartment List.
The modest growth in rents is not keeping investors away from Houston, said Clint Duncan, Senior Vice President of CBRE’s Capital Markets Multifamily Group. The underlying fundamentals of the Houston multifamily market are good, and investors are buying apartments with confidence that rents will rise over time, Duncan said.
A number of investors have been attracted to Class B and C apartments, which offer the opportunity to create value through renovations and rent increases.
In the Class C market, Three Pillars Capital Group, a Houston-based multifamily real estate investment firm, acquired 122-unit Camino Del Sol Apartments, which were built in 1969 in Pasadena. The buyer plans to spend $1.5 million for improvements.
In one recent Class A transaction, Alliance Residential acquired the 474-unit Archstone Toscano apartments on North Braeswood Boulevard near the Texas Medical Center for $98 million.