Houston Apartment Market Slides

HOUSTON – (By Dale King, Realty News Report) –The Houston apartment market declined during the third quarter of 2022, says the latest multifamily report from Colliers.

“Demand for multifamily housing slowed between quarters, recording 743 units of net absorption [in Q3] compared to 3,322 the previous quarter,” says the analysis from Colliers. The loss from Q2 to Q3 registers as an alarming decrease of 78 percent.

Also, the Bayou City’s multifamily investment sales volume tanked dramatically in 2022, from $8.6 billion to $2.3 billion in Q3 2022. “After reaching a historical high in Q4 2021, sales volume decreased 39 percent on an annual basis between Q3 2021 and Q3 2022, according to our data provider, Real Capital Analytics,” Colliers added.

The report took particular note of the substantial drop in absorption in the past year, from 11,977 rental residences absorbed in Q3 of 2021 to 3,322 in the second quarter to a scant 743 in the third quarter.

Construction has been brisk. More than 17,500 rental units are currently under construction right now – a jump from both the 13,467 in the third quarter of 2021 and the 15,070 that were being built in quarter 2 of this year. (Kajani Capital Group just announced it is building a 300-unit multifamily project near the southwest corner of Hwy 59 and Northpark Drive.)

The Greater Houston market continues to grow. Inventory rose from 703,036 units in the third quarter of 2021 to 716,494 in Q2 2022 and 718,780 during Q3 2022.

Occupancy dropped slightly, from 91.6 percent in the third quarter last year to 91.2 percent in Q2 2022 and 91.0 during the third quarter this year. Yet with occupancy numbers sliding, average asking monthly rent still managed to drift upward – from $1,166 in Q3 2021 to $1,251 during the second quarter of this year. Renters had to toss in an extra sawbuck for their leases in quarter 3 when the average asking rent figure reached $1,261, said Colliers.

The occupied unit rate, which bottomed out at just under 89 percent for several quarters during the COVID era, was growing fairly well until it started to skid late last year. It still hasn’t pulled out of the decline, but the percentages aren’t nosediving all that fast.

The rental trend for Houston still looks pretty good. The monthly cost of leasing a unit barely nudged above $1,000 from Q2 of 2018 to Q1 of 2021, according to a chart in the Colliers’ report. The rental rate bumped up sharply in the second quarter of 2021, nearly hitting $1,200. Rents went down, on average, during the subsequent quarter, but have been traveling skyward ever since. Just not very rapidly.

For investors, other takeaways from Colliers’ latest analysis

Houston’s median sales price per unit decreased by 9 percent over the quarter from $131,870 to $119,975. The Texas median price per unit recorded the largest quarterly increase of 20.7 percent from $135,415 in Q2 2022 to $163,408 in Q3 2022. The U.S. recorded an increase of 1.8 percent over the quarter.
Houston’s multifamily median cap rate decreased from 4.7 percent to 4.6 percent over the quarter. The Texas median cap rate decreased from 4.5 percent to 4.3 percent while the U.S. median cap rate remained at 4.6 percent. On an annual basis, Houston’s and the U.S. median cap rates fell from 4.8 percent in Q3 2021 while the Texas median cap rate fell from 4.6 percent.

The report was drafted by Lisa Bridges, Colliers’ director of market research for Houston.

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Houston Apartment Market Slides. Colliers.

Houston Apartment Market Slides