The Houston apartment market, driven by positive job growth, is one of the most impressive multi-family markets in the nation.
Occupancy is rising. Rents are up. And new construction is moving ahead at a tempered pace that is unlikely to result in extreme overbuilding.
“Things are all good right now,” says Stacy Hunt, executive director of Greystar Real Estate Partners, a national firm that manages 38,000 apartment units in Houston, and another 150,000 units in other parts of the nation. “Rents are going up. Concessions are going down. Locator fees are going down.”
Overall apartment occupancy in Houston stood at 88.26 percent in July, up 1.57 percent from a year earlier, according to the O’Connor & Associates real estate data firm.
Across the nation, the apartment market has been surging as softness has developed in the single-family home market. It’s much more difficult for home buyers to obtain mortgages. The drop in home prices has discouraged would-be home buyers who elect to rent apartments instead of buying homes. The national homeownership rate has been falling sharply and it is projected to slide down even more.
Apartment landlords are finding more profits as homeowners stay longer in their apartments. Greystar had a 64 percent turnover rate in 2009, meaning 64 percent of their tenants moved out during the year. In 2010, Greystar’s turnover rate dropped to 52 percent, a marked improvement over the previous year.
The improving market conditions have led to higher rents. The CB Richard Ellis firm reported a citywide monthly rental rate of 85 cents per square foot, a 3.5 percent increase over a year earlier. But that doesn’t tell the whole story, rents are up sharply in submarkets near downtown and Galleria.
Apartment rents in the Galleria area, for example, are up 7 percent in the last year and have surged at a 12 percent clip over the last three months, according to Houston-based Apartment Data Services. The Greenway Plaza, Montrose, and the Heights have all been sizzling.
The strong run-up in rents will at least continue for two or three more years, or until the single-family market regains traction, said Bruce McClenny, president of Apartment Data.
Developers have responded with a spate of new projects in 2011. The Dinerstein Cos. recently started construction in a 237-unit project on McCue Road near the Galleria. Houston-based Dinerstein is anticipating rents of $1.50 per square foot.
Archstone is developing 474 units on the site of the old Arabian Shrine Temple on North Braeswood, just west of the Texas Medical Center. In the Greenway Plaza area, the Morgan Group is building 340 units on Richmond Avenue. Other development companies that have been active include Martin Fein Interests, Hines, Hanover, Sueba, Post Properties and Jonathan Farb.
A total of 33 projects, with 6,234 units, are currently under construction, O’Connor reported.
Houston has seen plenty of overbuilding through the years, but that may not be the case this time around. Lenders are being conservative, imposing tighter lending standards on developers.
