MARKET SNAPSHOT
Apartment development activity in the Houston metropolitan area is finally beginning to taper, with the volume of units under construction falling below the 10-year historical average at the close of 2024. Completions are also expected to dip below their historical average in 2025. This slowdown follows a sharp 64% drop in new starts during 2024, totaling just 6,300 units, the lowest level since 2011. These trends are expected to create much tighter market conditions in the latter half of 2025 and into 2026.
Suburban areas to the north and west, including Bear Creek/Copperfield, Northwest Houston, and Outlying Montgomery County, have been the primary beneficiaries of new suburban construction. Urban core submarkets, such as Neartown/River Oaks and The Heights, have also experienced pronounced supply growth. These neighborhoods, located near employment centers and characterized by walkable streets and upscale dining options, have seen a surge in high-rise and mid-rise developments.
Looking ahead, rental absorption is anticipated to catch up with the excess supply of units on the market by late 2025 as new deliveries continue to slow throughout the year. This shift is expected to pave the way for rent growth and occupancy rates to recalibrate to historical averages by 2026.
As 2025 begins, Houston’s multifamily market is showing signs of stabilization. Mirroring national trends, demand in 2024 was the strongest since 2021, marking one of the best years on record. While newly delivered high-end properties accounted for the majority of absorption, the recovery in mid-tier properties has been particularly noteworthy. Over the past 12 months, mid-priced communities recorded 4,300 units of net absorption, a stark turnaround from the combined negative net absorption of 5,000 units in 2022 and 2023. Improved consumer sentiment, coupled with easing economic uncertainty and inflation, has likely unleashed pent-up housing demand, particularly within the mid-tier segment.
Despite strong net absorption, occupancy remains below historical averages due to the substantial influx of new units over recent years. The broader Houston metro’s average occupancy rate declined by 20 basis points year-over-year, settling at 90.5% by the end of 2024, below the 10-year average of 91.4%. Occupancy is projected to remain flat by the end of 2025, as lingering vacancies from 2024 temper what is otherwise expected to be a year where supply and demand approach equilibrium. However, if rental demand exceeds expectations in 2025, the market could see a meaningful improvement in Houston’s average occupancy rate by year-end.
Rental growth has underperformed over the last two years in Houston due to a substantial influx of new supply; however, it remained positive in 2024. The surge in inventory has limited operators’ ability to implement rent increases, shifting their focus toward occupancy retention. Despite these challenges, rents maintained a modest upward trajectory, closing 2024 with a 0.7% year-over-year increase. While this figure falls well below Houston’s 10-year average rent growth of 2.4%, it offers reassurance to operators, as the market has largely avoided the steep rent cuts and concessions seen in other major Texas metros facing acute oversupply pressures.
However, Houston submarkets with significant inventory expansion have not been immune to rent reductions. Northern submarkets, such as Montgomery County and The Woodlands, experienced rent declines in recent quarters, although only 11 of Houston’s 35 submarkets recorded negative rent growth in 2024. Looking ahead, rent growth is expected to remain subdued in early 2025, particularly in areas contending with excess supply. However, nearly all submarkets are projected to see rent increases by year-end, with Neartown/River Oaks, and Richmond/Rosenberg expected to lead the market with gains around 4%, exceeding the metro-wide forecasted increase of 2.1%.
12-month period ending November 2024
The 2025 outlook for the Houston metro is defined by the beginning of market stabilization, supported by one of the nation’s most dynamic economies. Unemployment is projected to average 4.0%, with the addition of 47,400 new jobs—among the highest gains of any large metro—representing a 1.4% increase in employment. Houston’s young population, affordability, warm climate, low taxes, pro-business environment, and cultural diversity are expected to drive a 5.2% expansion in the employment base over the next five years, according to MMG’s 2024 Employment Expansion Trend Report. These factors solidify Houston’s position as a thriving economic hub and support sustained multifamily housing demand. Notable developments, such as the TMC3 campus at the Texas Medical Center, are poised to create 26,000 jobs, generate $5.2 billion in economic benefits, and add millions of square feet of health science-oriented space.
Looking ahead, Houston’s relatively low cost of living and high individual earning capacity compared to other large metros will help stabilize demand as the market continues to absorb recently completed apartment projects. The anticipated slowdown in new construction over the coming quarters is expected to mitigate pressure on occupancy rates and support stronger rent growth. By year-end 2025, rents are forecasted to grow by 2.1% year-over-year, highlighting Houston’s resilience and sustained market strength.
