Home > Market Updates, multifamily, Uncategorized > Houston’s apartment boom won’t last forever

Houston’s apartment boom won’t last forever

Houston apartment rental rates rose to an all-time high in 2014, but experts predict a slowdown in the multifamily market this year.

The Bayou City saw strong rent growth since 2009, when apartment construction and rental rates fell amid the Great Recession. Average monthly rents grew from $721 in 2009 to $923 in 2014, according to data from Apartment Data Services and CBRE Research released this week.

Last year, apartment rental rate growth hit 8.1 percent, a record high for Houston, according to CBRE. The international commercial real estate firm attributed the rental growth to Houston’s rapid population and job growth, which has boosted occupancy rates well above 90 percent, and a flood of new luxury apartments, which can charge a higher premium for upscale amenities.

Although apartment rents showed no signs of slowing down earlier this year, this multifamily boom isn’t expected to last, according to industry experts. Apartment analysts, brokers and developers predict Houston’s apartment boom will cool down this year, amid low oil prices and concerns about overbuilding.

“We’re at a time when certainly there will be no rental growth,” said Marvy Finger, president and CEO of The Finger Cos., a longtime Houston developer. “It’s about how much contraction will there be?”

In recent months, several Houston-area apartments have ramped up their marketing efforts, offering rent concessions, referral bonuses and other incentives to drum up leasing and occupancy rates. Class A rents are expected to flatten or dip slightly while Class B and C rents may still have room to grow, said Bruce McClenny, president of Houston-based Apartment Data Services Inc.

On the construction side, some developers have stalled their projects as financing for new projects dried up. The oil slump has claimed an estimated 40 to 70 proposed apartment projects, said Pat Duffy, president of Colliers International’s Houston office. As a result, new apartment construction is estimated to fall by about a quarter this year, according to CMD Group, an Atlanta-based construction industry research firm.

Developers differ on how the oil slump and influx of new apartments will ultimately affect Houston’s multifamily market this year. Some developers, like Finger, paint a dire picture, describing the market in a “spiral down.” Others, like Scot Davis of Trammell Crow Residential, feel that while developers are keeping a wary eye on oil prices, they’re not overly concerned about it and are pressing forward.

Most however agree that the slowdown in apartment construction and rent growth will give the frenzied Houston apartment industry a much needed “correction.”

“It’s creating a pause,” said Ryan Epstein, executive vice president of CBRE Houston’s multifamily capital markets group, in an interview last month. “We needed something to slow us down and give us a chance to catch our breath.”

Paul Takahashi covers residential and multifamily commercial real estate for the Houston Business Journal.

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