Demand for multifamily housing slowed between quarters recording only 1,708 units of net absorption compared to 4,098 the previous quarter. The average monthly rent for multifamily units increased 2.0% over the quarter from $1,188 per month in Q4 2021 to $1,212 per month in Q1 2022. There are over 13,000 units under construction and another 32,800 units are proposed. Occupancy remained steady over the quarter at 91.5% and increased over the year from 88.8% in Q1 2021 to 91.5% in Q1 2022.
After reaching a historical high in Q4 2021, Houston’s multifamily investment sales volume dropped dramatically over the quarter from 8.6 billion to $1.2 billion. Further, sales volume decreased 17% year-over-year between Q1 2021 to Q1 2022.
Houston’s recovering economy has abetted its multifamily market, which circulated a substantial bounce back in 2021. On an annual basis through January, rent growth was up 10.9 percent, to $1,245, while on a creeping three-month basis the 0.2 percent rate reflected the national diminishing trend ascribed to winter. The metro’s average overall occupancy rate in stabilized properties rose 200 basis points year-over-year to 94.0 percent in December 2021.
Houston recorded a 4.4% unemployment rate in March 2022, 40 bps lower than December 2021 which was at 4.8% and another new low since before the pandemic. Comparing year-over-year, Houston has gained 150,400 non-farm jobs since last November, a 5.0% increase.
Employment and business services steered growth (33,400 jobs), it was boosted by the constant flow and surge of companies that spread or relocated to Houston, including Hewlett Packard Enterprise, NRG Energy, Axiom Space, Roboze and Exxon Mobil Corp. Last year marked an incomparable increase in transaction volume with multifamily sales exceeding $10.4 billion, which is more than double the previous decade-high in investment totals. Stock expansion was also hefty. The 19,898 units delivered made it the second-best year of the past decade for multifamily inventory expansion.
Houston’s multifamily median cap rate decreased on a quarterly basis to 4.6% from 4.8% and the U.S. median cap rate remained steady at 4.7%. Houston’s median cap rate decreased 40 basis points from 5.3% over the year. In comparison, the median U.S. cap rate dropped 30 basis points from 5.0% over the year.
Houston’s median sales price per unit decreased by 5% over the quarter from $155,720 to $147,897. The U.S. median price per unit fell 0.4% over the quarter from $191,406 in Q4 2021 to $190,614 in Q1 2022.
RENT TRENDS
- Houston rents increased by 0.2% on a trailing three month basis through January, to $1,245, dwindling the U.S. rate by 10 basis points. The average rent in the metro remained well below the $1,604 national rate. Year-over-year, asking rents in Houston increased by 10.9%, trailing the 13.9% U.S. rate.
- Rent development was ushered by the Renter-by Necessity segment, up 0.4% on a T3 basis through January to $978, likely due to the segment’s limited inventory, as last year, developers delivered almost exclusively upscale apartments. Meanwhile, rates in the Lifestyle segment rose 0.1%, to $1,546.
ECONOMIC TRENDS
- Houston’s unemployment rate improved to 4.8% in December, from 8.2% in January 2021. This places the metro ahead of the state’s performance during the period (at 5.0% in December from 6.8% in January) but lags the nation (at 3.9% in December from 6.4% in January).
- Houston posted strong gains in 2021 but is still recovering from losses. The recovery remains volatile as the local economy is highly dependent on the national and global economies due to an economic base that consists of jobs that supply goods and services to the nation and the world.
SUPPLY
- In January 2022, just 197 Lifestyle units came online in Houston, but last year’s deliveries (19,878 units or 2.9% of total stock) made 2021 the second-best year during the decade (the peak was 21,701 units in 2017) and placed the metro second among all major markets, behind Dallas.
- Stock expansion will likely moderate in coming years, as developers broke ground on just 3,575 units in the second half of last year. As of January 2022, the overall development pipeline totaled 24,206 units under construction and 49,500 units in the planning and permitting stages.
As informed investors we should understand the risks associated with real estate investing and that there is no guarantee. Please do your due diligence.
What are some of the key trends in the Houston multifamily market?
What are some of the challenges associated with sustainable multifamily housing?
While there are many benefits to sustainable multifamily housing, such as lower energy costs and a reduced environmental footprint, there are also challenges associated with implementing green building practices, such as the higher upfront costs and potential difficulties in obtaining financing.
