The Apartment market in Texas has been on a roll, and it is believed that roll will continue for years to come. Families and businesses continue to be drawn to the state due to its abundant energy, including renewables, business-friendly state and local governments, and state-of-the-art and affordable state university and college system.
Several factors have fueled notable demand volumes in Texas. This state has benefited from sizable domestic migration, and corporate relocations have led to some of the fastest-growing economies as well, which is especially true in Austin and the Dallas/Fort Worth metroplex. Economic and population growth coupled with favorable demographics have set the stage for demand tailwinds in the Lone Star State.
Apartment real estate investment growth in Texas
About multifamily real estate, unit supply growth has been very strong but demand has been even stronger. The existing unit count in the state of Texas has grown by 140,000 new apartments over the past two years, which increased the state’s existing inventory base roughly 6%. While new supply volumes have been incredibly high, however,
Texas demand is even better. Remarkable levels of absorption in the state resulted in total demand of roughly 190,000 units in the past two years. That works out to about 8% more occupied units today than at the start of 2020.
Moreover, as opposed to a “boom-bust” cycle that usually arises in major expansions, lending institutions are requiring as much as 50% capital down from developers, thus reducing the risk of too much leverage in the market.
Corporate migration to Texas from the U.S. and abroad is expected to accelerate. Companies both in the U.S. and Europe will pick up the pace to relocate to Texas, especially in Europe as energy dependence on Russia has brought terrible problems. Additionally, it’s not just fossil fuels powering Texas. U.S. News reports:
In the first quarter of 2022, Texas led all states in overall renewable energy production, accounting for over 14% of the country’s totals, due in large part to the state’s prolific wind energy program.
Texas produced nearly a quarter of the nation’s wind energy, a percentage that is likely to grow after President Joe Biden announced his plan to expand offshore wind infrastructure for the first time into the Gulf of Mexico.
The plan includes a wind farm larger than the city of Houston off the coast of Galveston, Texas, with the potential to power as many as 2.3 million homes.
A great example of the migration to Texas phenomenon is the new Texas Instruments project in Sherman, Texas. Texas Instruments is investing $30 billion into a new semiconductor wafer plant in Sherman, Texas a city just about an hour’s drive north of Dallas.
The first phase of the massive project is scheduled to be completed in 2025. It is estimated that Sherman’s population will double from 40,000 to 80,000. As for multifamily, 12,000 apartment units are also scheduled to be built.
Additionally, Panda Power Funds is building a new plant in Sherman. The Panda Sherman Power Project continues the narrative that manufacturing plants, electricity infrastructure development, and jobs all continue to be the trend in Texas.
The use of renewable energy producers like Panda can bring valuable Renewable Energy Credits to manufacturers, another great benefit in Texas. The future continues to be bright for investment in Texas multifamily.
The apartment real estate market in Houston continues to hold steady. The occupancy rate is low, yet higher than the 1999 rate, with the class B market at approximately 94 percent. Lease rates average around $1 per square foot for class A space, 77 cents per square foot for class B space, and 56 cents per square foot for class C space, according to McDonald, and rates are expected to increase due to personal income and population growth. About 2000 new spec units currently are under construction, he says.
The San Antonio multifamily real estate market also remains stable. The year 2000 saw the highest construction since the mid-80s with 3,782 class A units added to the market in northern regions of the city with lease rates that average around 90 cents per square foot.
This new construction has caused a dip in San Antonio’s multifamily apartment occupancy rate, which, at about 93 percent, is down 1 percent from 1999. Average sales prices per unit increased 8.6 percent from $31,958 per unit in 1999 to $34,978 in 2000.
San Antonio will experience continued building in high-end, target-specific apartments with growing need for moderately priced housing. However, the market will soften somewhat due to the glut of new construction in class A apartments.
As informed investors we should understand the risks associated with real estate investing and that there is no guarantee. Please do your due diligence.
