$1,312 1Q 2024
-0.2%
90.6% 1Q 2024
-100 BASIS POINTS
4.5% (FEB 2024)
6.4% (FEB 2024)
* Please note that these employment figures have been adjusted for seasonal variations and are based on Moody’s Analytics forecast as of January 1, 2024.
** Please note that these unemployment rates are estimates that have not been adjusted for seasonal variations, and they are derived from Moody’s Analytics forecast as of January 1, 2024.
QUARTERLY DEMAND
QUARTERLY COMPLETIONS
Demand in Houston’s multifamily market showed a robust increase in early 2024, although new supply continues to exceed leasing activity, maintaining a pattern seen since late 2021. Over the past year, 12,000 units have been absorbed. However, demand for Class B properties remains weaker, as it has for much of the past two years. While some residents of Class B properties are moving to new Class A properties, drawn by significant concessions, others are feeling the pinch of rising costs for essentials like food and energy, which is particularly challenging for budget-conscious renters and trading down to ease financial constraints.
While Houston consistently ranks high in the U.S. for new construction, its development pace has been measured lately, with only 3.1% of its inventory currently underway—below the national average of 4.5%. This contrasts sharply with other rapidly expanding Sun Belt markets like Austin, Charlotte, and Miami, where approximately 13% of their inventory is under construction, posing a much greater risk of overbuilding in those markets. In Houston, the primary areas of construction activity are the rapidly expanding suburbs to the north and west and the increasingly dense urban core.
In Houston, there are clear indications of occupancy stabilization, with the average market wide occupancy rate only decreasing slightly by 10 basis points to settle at 90.6% in the first quarter of the year. Looking ahead, as supply-side pressures begin to ease, there is an expectation of a gradual increase in the occupancy rate. Over the next four quarters, projections indicate the delivery of roughly 12,500 units, a significant decrease from last year’s peak of 24,400 units.
Furthermore, the first quarter of 2024 saw an impressive absorption rate exceeding 3,500 units—the highest in a year and nearly 15% above the average for the first quarters from 2015 to 2019. This demand is predominantly fueled by the absorption of new inventory, which is evident in areas with heavy new developments like Bear Creek/Copperfield and Cinco Ranch, where some of the highest absorption figures over the past year were recorded. However, these regions are experiencing some of the lowest occupancy rates due to supply outstripping demand. Conversely, areas with a high concentration of workforce housing, such as Northeast Houston, are maintaining higher occupancy rates, benefiting from relatively low supply pressures.
Average Monthly Mortgage Payment
For the second consecutive quarter, effective rents in Houston remained essentially flat, showing a slight 0.2% decrease from the previous year. Despite this, Houston is outperforming its Texas Triangle peers—Austin, Dallas-Fort Worth, and San Antonio—which are all experiencing more significant rent reductions. This is largely due to the higher percentages of new supply in these markets, with Austin, Dallas-Fort Worth, and San Antonio seeing new supply levels at 13%, 6%, and 7% of their total inventory, respectively, compared to Houston’s more modest 3%.
In Houston, Class A properties are facing the most severe rent pressures as they compete with newly delivered communities. Conversely, lower quality assets are performing better, achieving modest rent gains due to increasing demand for more affordable options. Notably, Class C properties are leading with a 1.7% rent growth over the past twelve months, followed by Class B properties at 0.3%. Looking forward, rental performance in Houston is expected to remain relatively unchanged through most of 2024 as the market absorbs the current construction pipeline. However, by 2025, a reduction in new construction is likely to foster a return to more typical rental growth rates.
Average Monthly Rent
According to preliminary data from MSCI, the transaction volume for conventional, single-asset deals in the multifamily sector amounted to $389.5 million across 10 deals, marking a 27% decrease from the previous year. Private buyers, less dependent on debt markets, have increased their market share over the past year as institutional capital has significantly retreated. Private capital represented 80% of the transaction volume over the past four quarters, above its long-term average of 67%. This shift in the buyer pool has altered buying patterns: sales of large, luxury assets, which accounted for about 17% of all transactions in the first quarter, were down from 30% in 2022. Although institutional capital has scaled back its activity, it remains a presence in the market, primarily targeting newer properties in rapidly expanding suburban areas.
* Trailing 4Q average PPU
* Preliminary Data from RCA – Individual transaction $2.5M +
Please note that the income and expense data presented in this section is sourced from third-party providers. Our firm does not provide any warranty or guarantee as to the accuracy or reliability of this information. We recommend that users exercise their own discretion and professional judgment when interpreting and utilizing this data.
| Income Assumptions | Value / Unit | Year Change (%) |
|---|---|---|
| Rental Income / Occupied Unit | $1,416.03 | 5.3% |
| Recoverable Expenses / Occupied Unit | $87.02 | 9.9% |
| Other Income / Occupied Unit | $87.68 | 4.8% |
| Total Income / Occupied Unit | $1,590.73 | 5.5% |
| Rental Income | $1,301.65 | 5.1% |
| Recoverable Expenses | $79.99 | 9.7% |
| Other Income | $80.59 | 4.6% |
| Total Income | $1,462.23 | 5.3% |
| Operating Expenses | Value / Unit | Year Change (%) |
|---|---|---|
| Payroll | $143.44 | 3.5% |
| Repairs & Maintenance | $52.21 | 5.4% |
| Leasing | $59.72 | 1.0% |
| General | $31.52 | 5.0% |
| Marketing & Advertising | $26.50 | -7.7% |
| Repairs & Maintenance | $94.82 | 3.2% |
| Cleaning | $18.29 | 5.0% |
| Roads & Grounds | $14.10 | -3.7% |
| General | $62.43 | 4.4% |
| Administrative | $48.73 | 5.5% |
| Security | $10.65 | -3.6% |
| General | $38.08 | 8.5% |
| Management Fees | $43.85 | 3.8% |
| Utilities | $94.87 | 4.0% |
| Electric | $18.62 | 2.7% |
| Gas | $2.79 | -30.9% |
| Water/Sewer | $73.46 | 6.6% |
| Real Estate & Other Taxes | $255.68 | -1.8% |
| Insurance | $86.87 | 40.2% |
| Other Operating Expensees | $6.59 | |
| Total Operating Expense | $801.33 | 4.5% |
| Value / Unit | Year Change (%) | |
| Net Operating Income | $660.90 | 6.4% |
|---|
Long-term optimism about Houston’s multifamily market persists among buyers, buoyed by the city’s status as the fourth most populous in the U.S. Houston’s dynamic growth is expected to continue attracting diverse populations: students flock to its 14 major colleges and universities, young professionals are drawn to the robust energy sector and the rapidly expanding healthcare and biomedical research fields, and families appreciate the city’s relative affordability compared to Dallas-Fort Worth and Austin. This broad appeal should sustain demand in the multifamily sector for years to come.
