Apartment Investors Returning to Houston, says Colliers

HOUSTON – (By Dale King, Realty News Report) – Things are getting hot again in Houston, says a new report by Colliers. And it’s not all connected to the weather.

The Bayou City’s multifamily investment sales market is cranking again after a two-year pandemic slowdown.  The Colliers report following up on early to mid-year activity for 2021 says volume has increased 24.1% over the quarter between the final three months of 2020 and the beginning of Q1 2021.  Results are based on statistics from Real Capital Analytics, Colliers’ data provider.

The report, written by Lisa Bridges, director of market research for Colliers in Houston, says the spike in volume “reflects a positive change in market conditions when compared to the year-over-year volume decrease of 42.9% between Q1 2020 and Q1 2021. When comparing Houston to national results, the city’s quarterly volume increase was significantly greater than the 0.6% increase in U.S. quarterly sales volume.”

Locally, the average sales price per unit is still lower than the national average, even though Houston’s price point grew substantially. The report says Houston’s average sales tag per unit rose by 14.4% during the year, from $126,969 to $145,273. The U.S. average price per unit increased by just 0.4% for the same period, from $173,617 in Q1 2020 to $174,406 in Q1 2021.

The city’s apartment occupancy rate is still recovering. Occupancy of 89.1% was reported in Q1 2020, which dropped a tad to 88.5% in the last quarter of 2020, and is nudging back up, hitting 88.9% during the first quarter of 2021.

Houston’s total inventory of units has increased steadily from 672,749 during Q1 2020 to 689,718 as 2021 began. Units under construction right now tally 16,951, down from 17,152 late last year and 23,472 early in 2020.

What’s causing the Houston apartment investment uptick seems more than just COVID recovery. “In the last 90 days, interest in Houston multifamily has spiked considerably from where it has been for the past 24 months,” said Chip Nashsenior vice president for Colliers in Houston and director of multifamily investment properties. He wrote the report’s executive summary and provided commentary.

Anxious Investors Search for Opportunities

“Investors are anxiously searching for opportunities to invest their equity, and the market has responded with numerous new offerings. Contrary to the previous 12 months, investors now have multiple opportunities to consider, spurring spiked pricing and pushing cap rates to lower numbers than [those] seen at the beginning of 2021.”

“We expect sales volume to continue to increase as investors are priced out of buying opportunities in other areas, both nationally as well as within the State of Texas,” Nash said. “Low cap rates in Dallas and Austin have driven investors to Houston.”

The local market is being eyeballed from outside the municipal borders, says Nash. “We estimate that as many as 75% of properties sold this year could go to investors that don’t currently own here.”

He added: “We believe there will be an increased demand for value-add properties where cash-on-cash yields are expected to grow once rehab improvements and unit upgrades are completed, thus giving investors a boost in performance and yield, and gains in occupancy.”

29th Street Capital buys Class B Project

In a recent transaction, the privately-held real estate investment firm 29th Street Capital (29SC), acquired the 224-unit, Class B Lincoln Medical Center Apartments. The purchase marks the firm’s 13th multifamily acquisition in the Houston metro area, totaling nearly 4,000 units in the market. “The employment boom, combined with continued population growth, will benefit the asset moving forward,” said Doug Burt, 29SC’s Vice President of Acquisitions based in Houston.

.Emsi Labor Analytics says Houston’s population grew 7.5% from 2015 to 2020, adding about a half-million residents. The expectation for the next five years is a 7.6% surge, adding 544,540 residents.

On the employment front, the number of jobs in Houston-The Woodlands-Sugar Land grew 2.3%, from 3,276,633 to 3,350,731 during the 2015-to-2020-time frame, outpacing the national growth level of 1.3%.

June 2, 2021 Realty News Report Copyright 2021

Photo: Courtesy  29th Street Capital

For more about Texas development, check out the book Houston 2020: America’s Boom Town – An Extreme Close Up  by Ralph Bivins. Available on Amazon  http://tiny.cc/4a2g6y  

File: Apartment Investors Returning to Houston

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