Downtown Apartment Rents Down 14 Percent, While Houston Suburbs Hold Firm

HOUSTON – (By Dale King, Realty News Report) – Rents in Houston’s many neighborhoods had been steadily on the rise until the COVID-19 pandemic struck hard last March.

Then, the cost of renting multifamily units began to drop, says the October 2020 Houston apartment market analysis prepared by

“Rents in Greater Houston have declined overall by 1.7% since the end of March,” it says. “But that’s not true for most suburbs, where rent growth has been flat.”

Actually, many of those outside-the-city areas, including such regions as Sugar Land, Richmond, Willowbrook, Ella and Pasadena, “are actually seeing positive growth,” said Bruce McClenny, president of the Houston-based data firm.

That’s in part because renters have less of a reason to be in the urban region because of the pandemic, said McClenny. “They can work from home now, so they can move out and be in a different area and still work and not have to commute.”

Add to that the fact that many of the bars, places of entertainment and other fun spots which likely attracted people to live in the urban core have largely been snuffed out by the raging virus.

McClenny’s report ranks the Downtown as the 42ndworst place on a list of 42 Houston submarkets. The cost of rent in the urban center has dropped 14.3% in the last six months, 12.3% in the last year. Just 271 apartments have opened in the Downtown, and over 1,200 are under construction.

The next worst areas of the city – Highland Village, Upper Kirby and West University – saw rent prices drop by 9.7% in the past six months, 10% on the nose during the past 12. Units in The Heights and Washington Avenue have been renting at minus-6.3% for the past six months, minus-5.2% in the past year.

New apartment construction releases another teardrop onto Houston’s recitation of rental woe, said McClenny. “Construction in the Inner Loop, it’s just a double whammy. You’ve got a lot of construction, very little absorption.”

All of the “Top 14” Houston submarkets listed in the report – from Highway 288 South and Pearland West down to Jersey Village and Cypress – recorded rent growth in positive numbers, though many just made it over the line of negative demarcation. Eight of the middle 14 submarkets also saw increases – though some spots, like the two aforementioned locations, hit only 0.6% growth. Westchase came in at 0.2% for the past six months, 0.3% for the past 12 months and Alvin, Angleton and Lake Jackson barely crossed the finish line with a .1% uptick for the six-month figure, 4.0% for 12 months.

While 22 neighborhoods managed to grow some, they were not results to write home about. The biggest increase was in the I-69 North area, where rents went up an average of 4.5%. Sugar Land, Stafford and Sienna showed growth of 3.7% after the six-month reading after coming back from a .9% drop over the 12-month period.

The number of rental units in the pipeline was not a good measure of growth or lack of it. Five of the 14 top-ranked submarkets, seven of the middle 14 and four of the bottom 14 have no apartments under construction.

On the other hand, “some suburbs, such as the Katy area, have seen a lot of apartment construction, but it generally hasn’t caused rents to go down this year.”

The October 2020 report on average monthly rent in Houston since March is not a good place to find uplifting news. Overall, average monthly rent where the cost of a lease was recorded at $1,059 in March dropped $18 (1.7%) to $1,043 by Oct. 31.

The cost of leasing a Class A unit was $1,535 in March, $1,447 on Halloween 2020, a spooky decline of $88 a month, or -5.7%.

Class B, C and D units suffered least.  B rents went down $10, and you could snap up a Three Musketeers or Snickers bar with the dollar you’d save on Class C and D rents between March and October.

“As Texas and the nation continue the tug of war between health and economic outcomes, the apartment industry as well as many others remain vulnerable to COVID-constrained demand, especially as we enter the critical winter months, which are traditionally the slowest in the lease market,” said McClenny.

Coincidentally, comparing the single-family home market in Houston to the rental arena is like a tale of two cities. While 1-family housing stock has enjoyed three months of strong sales growth and declining inventory, Houston apartments remain in a weakened position, due not only to the coronavirus, but also to overall uncertainty in the job market and a surge of new construction adding supply and absorbing little, said McClenny.

“Real estate markets really depend upon job growth to grow,” he said.

To conclude his report on more of a sunny note, McClenny offers a “Houston fundamentals – forecast” for 2021, one that’s not steeped in pessimist.

He notes that while Houston suffered a couple of bad unemployment years in 2015 and 2016 when it lost 2,500 and 2,400 jobs respectively, employment growth rose 1.8% in 2017 with the addition of 54,000 jobs.

The following year was even better when job totals increased by 2.7% or 82,700. In 2019, 62,200 jobs were created within the Bayou City.

How bad has 2020 been? Some 160,000 jobs were lost by Sept. 30.

McClenny paints a rosier 2021.  He anticipates an increase of 2.7% in the number of jobs (70,000). He also predicts 14,000 new apartment units will be opened, of which 13,000 will be absorbed into the community.

Apartment occupancy is the only figure that has changed little in the past half-dozen years. McClenny sees it hitting 88.5% next year, practically the same as it’s been since 2016. In 2015, rental occupancy was at a high of 90.4%.

Rent growth will slip back into a positive grade next year, he anticipates, with the cost of apartment rent increasing by 1.5%.

Nov. 27, 2020 Realty News Report Copyright 2020

Caption: Rendering of new Autry Park development under development  by Hanover and Lionstone near Buffalo Bayou Park.

File: Downtown Apartment Rents Down

File: (2). Houston multifamily. Bruce McClenny. Downtown Apartment Rents Down 14 percent.

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