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Hurricane Harvey Launched Houston’s Apartment Market Into an Immediate Turnaround

Robert Kramp

HOUSTON – (Realty News Report) – Hurricane Harvey accelerated multifamily absorption in Houston and drove a rise in rental rates, according to a new analysis by international real estate firm CBRE.

“A quickly draining construction pipeline — with less than 7,700 units underway — and reduced inventory due to flooding is causing supply to tighten further while demand from displaced single-family residents, contract workers, and natural growth will orient leasing toward landlords,” predicts Robert C. Kramp, Director, Research & Analysis at CBRE’s Texas-Oklahoma Division.
Kramp noted that pre-Harvey, multifamily absorption in Houston was already exceeding deliveries by almost 2,000 units, through August 2017. Hurricane Harvey accelerated that by approximately 18 months. In the aftermath of the storm, multifamily occupancy has tightened by 120 basis points with rents rising 1.5 percent, according to Apartment Data Services. Deliveries of new units will taper off significantly in 2018.
CBRE occupancy models prior to Harvey indicated a steady rebound in occupancy through 2020, with occupancy reaching 90 percent between 2018 and 2019.
The demand from displaced renters and residents seeking temporary housing spiked dramatically after the storm according to Kramp. Houston’s multifamily occupancy rose to 90.1 percent according to preliminary estimates from Apartment Data. “Harvey effectively accelerated the multifamily recovery timeline, propelling Houston into a landlord-favored market 18 months ahead of schedule,” Kramp says. “The spike in occupancy driven by Harvey is expected to stay. In addition, a majority of rental concessions expired. A subdued development pipeline along with sustained recovery-driven demand is expected to pull down vacancy.”
Kramp adds that CBRE figures are “The risk of possible future flooding and the potential loss of equity following another similar storm could create new segment of permanent renters. For example, older homeowners contemplating apartment living now have an additional motivation to shift from owning to renting,” says Kramp. “This housing change comes with a number of advantages such as the potential to reduce tax liabilities, lower maintenance burdens and several physical stories of separation from any future impeding floodwaters.”
Housing was acutely affected in some areas of Houston, with an estimated 72,000 single-family homes damaged or destroyed. The city’s apartment market was significantly less affected than initially  thought, with approximately 10,600 units reported to be damaged, according to Apartment Data.
“The Texas Department of Public Safety estimates that approximately 3.3 percent of the Houston metro’s inventory suffered minor damage –residences that are habitable within 30 days after repairs,” Kramp said, “while destroyed homes represent 0.1 percent of inventory. The multifamily market fared considerably better in some submarkets, while market-wide damage was to limited to approximately 10,600 units — or 1.7 percent of Houston’s total inventory.”
Based on preliminary damage reports, the multifamily submarkets most severely impacted were situated in the Northeast with some 5.1 percent of total inventory damaged. Particularly hard hit included the Greenspoint, Lake Houston/Kingwood, Northeast Houston/Crosby, and I-10 East submarkets. “Other submarkets experiencing substantial damage were those with significant exposure to Houston’s extensive bayou system such as the Med Center/Braes Bayou, Almeda/South Main, Energy Corridor, and Bear Creek submarkets,” CBRE reported.
Before the Category 4 hurricane made landfall in Texas on Aug. 25, some Class A apartments had been offering two or three months of free rent as a leasing incentive. But free rent vanished overnight when the storm passed and Houstonians – including landlords – began operating in a new reality.
Oct. 2, 2017 Realty News Report Copyright 2017

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