Houston Apartment Association’s State of the Industry: Worst is Over, But Recovery Won’t Be Instant

Stacy Hunt of Greystar moderated the Houston Apartment Association’s State of the Industry breakfast last week. Hunt is a former president of HAA and the Texas Apartment Association.

HOUSTON – Houston’s multifamily industry will have a lackluster 2017 with upscale Class A properties as the weakest sector. That’s the word from the Houston Apartment Association’s State of the Industry breakfast last week.

The worst multifamily problem spots are Class A properties in Montrose, Downtown, the Galleria area and the Medical Center area, says Bruce McClenny of Apartment Data Services.

Weak job growth, the energy downturn and heavy multifamily construction activity – some 58,000 apartment units were built over the last three years – created the weakness in Houston’s Class A market, McClenny says.

“We still have too much supply,” McClenny says.

Allied Orion Group will complete four multifamily communities this year, said COO Ian Douglas, but he’s encouraged by the fact that oil prices have almost doubled over the last year. If Houston could only absorb 10,000 units, Douglas says, then everything would be all right. But 10,000 units is a tall order in today’s market. The reality is multifamily absorption will be closer to 5,000 units in 2017.

Rents in the Class A market will be weak this year. Even the Class B and C markets, which had been golden in recent years, will get a bit of tarnish in 2017.

Most of the panelists at the HAA breakfast indicated that the Houston multifamily market is recovering and they pointed to a turnaround in 2018 if job growth and absorption continue in a positive manner.

“We are still concerned. But we are staring to see some bright things happening,” said Stacy Hunt of Greystar.

Hunt, who moderated the HAA discussion, said investors are still interested in Houston apartments. “A lot of people want to buy Houston value-add properties. But we’re not quite to the point where institutions feel good enough to buy Class A.”

Swapnil Agarwal of Nitya Capital, which has purchased 8,000 value-add units in two years, recent years, said the Houston’s population growth has made the city an excellent place for multifamily investment. Improvements to Class C properties and good management can result in higher rents and more tenant renewals, Agarwal said.

“The U.S. is still a very attractive place to invest,” Agarwal said. “Going forward, we will continue to be very aggressive. We are excited to be in Houston.”