Houston 1Q 2024 Market Report

MARKET SNAPSHOT

AVERAGE RENT

$1,312 1Q 2024

1Q 2024 RENT CHANGE

-0.2%

OCCUPANCY RATE

90.6% 1Q 2024

ANNUAL OCCUPANCY CHANGE

-100 BASIS POINTS

TOTAL OPERATING EXPENSE ANNUAL CHANGE

4.5% (FEB 2024)

NET OPERATING INCOME ANNUAL CHANGE

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.

KEY TAKEAWAYS

  • Healthy Absorption: Houston’s multifamily market displayed strong demand, with quarterly absorption in the first quarter of 2024 exceeding 3,500 units—the highest in a year and nearly 15% above the first-quarter average from 2015 to 2019.

 

  • Moderately Priced Asset Outperforming: While Class A properties are experiencing significant rent pressures due to competition from newly delivered communities, lower-tier assets are outperforming, registering modest rent gains driven by increasing demand for more affordable housing options.

 

  • Occupancy Stabilizing: Signs of occupancy stabilization are evident in Houston, with the average market-wide occupancy rate experiencing a slight decline of 10 basis points on a quarterly basis, settling at 90.6% at the end of the first quarter.

Supply & Demand

1Q 2024

3,626 Units

QUARTERLY DEMAND

5,752 Units

QUARTERLY COMPLETIONS

Annual Demand vs Completions

Demand Trends

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.

Construction Trends

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.

Occupancy & Rent Trends

OCCUPANCY TRENDS

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.

$2,058

Average Monthly Mortgage Payment

RENT TRENDS

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.

$1,312

Average Monthly Rent

Submarket Rent & Occupancy

Submarket Construction Pipeline

Sales Activity

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.

TRANSACTION VOLUME


YTD Transaction Volume

Y-O-Y Change

Individual Transaction Count

Price Per Unit

Annual PPU Change

* Trailing 4Q average PPU

* Preliminary Data from RCA – Individual transaction $2.5M +

Income & Expense Analysis

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 & Expenses

Income Assumptions Value / UnitYear Change (%)
Rental Income / Occupied Unit$1,416.035.3%
Recoverable Expenses / Occupied Unit$87.029.9%
Other Income / Occupied Unit$87.684.8%
Total Income / Occupied Unit$1,590.735.5%
Rental Income$1,301.655.1%
Recoverable Expenses$79.999.7%
Other Income$80.594.6%
Total Income$1,462.235.3%
Operating ExpensesValue / UnitYear Change (%)
Payroll$143.443.5%
Repairs & Maintenance$52.215.4%
Leasing$59.721.0%
General$31.525.0%
Marketing & Advertising$26.50-7.7%
Repairs & Maintenance$94.823.2%
Cleaning$18.295.0%
Roads & Grounds$14.10-3.7%
General$62.434.4%
Administrative$48.735.5%
Security$10.65-3.6%
General$38.088.5%
Management Fees$43.853.8%
Utilities$94.874.0%
Electric$18.622.7%
Gas$2.79-30.9%
Water/Sewer$73.466.6%
Real Estate & Other Taxes$255.68-1.8%
Insurance$86.8740.2%
Other Operating Expensees$6.59
Total Operating Expense$801.334.5%
Value / UnitYear Change (%)
Net Operating Income$660.906.4%

Market Outlook

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.

Sources: Yardi Matrix; Costar; MSCI.

To Gain Further Insights Into The HOUSTON Market Please Reach Out To Our local Team

Image of Mike Watson

Mike Watson

Managing Director

Michael Moffit

Managing Director

Richard Mireles

Senior Director

Mark Diebold

Senior Director

Tyler Salter

Associate Advisor