Occupancy Down, Rents Up in Post-Hurricane Houston
Overall occupancy declined over the past year, as the aftermath of Hurricane Harvey continues to be felt, according to the latest report by Berkadia. Development is focused in the downtown core, where average rents grew by 4.3 percent.
Strong job growth is driving sustained rental demand in the Houston metro area, which saw a 1.5 percent uptick in multifamily rents year-over-year, according to a first quarter market report by Berkadia.
Apartment construction is focused on the city’s rapidly developing urban core, with the Downtown/Montrose/River Oaks submarket accounting for some 22 percent of new supply across the Houston metropolitan area during the last four quarters. Total inventory across the region reached 685,311 units, increasing by 681 units year-to-date, Berkadia’s research team found.
The aftermath of Hurricane Harvey is still being felt. The Category 4 storm slammed into Houston in August and September 2017, submerging a large part of the city and forcing thousands of homeowners to move into temporary rentals. This caused a spike in multifamily occupancy, which eventually eased back down as many of those displaced residents returned home. Overall occupancy declined by 120 basis points year-over-year to 92.8 percent in the first quarter of 2019.
Apartment operators reined in rental growth in response to slackening occupancy. The trend was evident in Downtown/Montrose/River Oaks, where the average rent rose 4.3 percent year-over-year to $1,817—down from 7.1 percent growth in the previous year. Across the metropolitan area, effective rent was up 1.5 percent year-over-year to $1,088.
Job growth lifts housing demand
Accelerated hiring in Greater Houston supported multifamily demand near employment centers. Total nonfarm employment in the metro climbed by 2.5 percent year-over-year, up from the previous year’s 1.9 percent growth. Professional and business services employers added 15,200 net positions, while construction firms added 8,200 net jobs, boosted by new construction of several large-scale projects.
Among these job-creating projects was Texas Tower, the 47-story, 1-million-square-foot downtown office tower being developed by Hines and Ivanhoé Cambridge. Hiring in the construction sector is also bolstered by work on the $1.1 billion McNair medical campus, scheduled for completion in 2019, as well as the $815 million investment in State Highway 288 and billions of dollars in local and federal funds earmarked for critical food-control projects.