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Apartment Markets Begin to Rebound from Drop in Oil Prices

Midland-Odessa Rent Growth Positive

By Dave Sorter | Wednesday, May 17, 2017


The severe drop in oil prices that took place from June 2014-February 2016 wreaked havoc on apartment markets in oil-industry-dominant metros – especially in Texas, Oklahoma and North Dakota.

But though the effects are still being felt, things are starting to turn around – most visibly in West Texas. Oilfield markets are recovering more quickly than refinery and business-side markets.

While the price of West Texas Intermediate crude fell from $108 on June 20, 2014, to $27 on Feb. 10, 2016, thousands of jobs were lost. From the oilfields of West Texas and western North Dakota, to the refineries of Beaumont-Port Arthur and the eastern part of the Houston area, to the offices in Houston, Tulsa and Oklahoma City, no part of the energy industry was left untouched.

Those job losses, in turn, reduced demand for apartments and sent rents spiraling down – further exacerbated in Houston by a huge influx of new construction that continues in 2017.

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As shown in the chart above, Houston annual effective rent growth was 6.2% in June 2013, but fell as low as -3.9% in December 2016. Rent growth has since somewhat increased, to -3.1% in April 2017.

But Houston has a supply issue that would have brought market performance down even if oil prices had remained steady. Some 78,846 new units have or will come to market from 2013-2017, among the most in the nation.

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Houston, however, is not the front line for oilfield activity. And it’s the fields where the strengthening of the industry is taking place. With the price of West Texas Intermediate crude now hovering around $50 per barrel, drilling activity is picking up, as shown by the massive increase in the rig count over the past year.

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Sources: Axiometrics, Baker Hughes

The Permian Basin, near the Midland-Odessa area, is not only the busiest energy-extraction field in the nation, but is also the basin with the highest annual rig-count growth, according to Baker Hughes’ weekly rig count. The job-growth figures are starting to reflect the increased activity: Though overall job growth was negative in March, the most recent Bureau of Labor Statistics figures available, the mining and logging sector – which contains most oil- and gas-related field jobs – was positive.

Plus, the overall March job growth of -0.6% in Odessa and -0.1% in Midland is a vast improvement over the -10.3% and -6.6%, respectively, of one year earlier.

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The improved jobs situation is starting to increase apartment demand in markets where new supply is very low. In fact, no new apartment units have been built in Odessa since 2014, while Midland added 1,717 units in 2015 and 2016 combined, but no new construction is in the 2017 or 2018 pipeline.

So, annual effective rent growth has increased from early 2016 lows of -36.2% in Midland and -29.8% in Odessa to April’s rates of 14.6% and 6.8%, respectively.

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For a more detailed analysis of the Midland-Odessa market, see RealPage’s Cameron McIntosh’s piece.

North Dakota’s oil-dominant apartment markets aren’t seeing any effect quite yet, but recovery in the Bakken Shale may be close. The expected completion of the Dakota Access Pipeline within the next month has jobs opening up, with Williston employers listing 500 more available jobs than one year ago, according to an article in “New American.” The BLS does not break down employment figures for the Williston and Dickinson Micropolitan Statistical Areas, where the jobs are being added.

With the Bakken Shale rig count increasing by 83.3% in the past year, the added jobs should start creating more apartment demand. Rent growth was -37.5% in Williston in April, in a market where rents dropped almost as fast as oil prices.

The average Williston monthly rent was $2,194 in January 2015, just after one publication listed Williston as the most expensive place to rent in the nation. But in April 2017, the average rent was $853.

Williston is a miniature Houston on the supply front. Developers had dollar signs in their eyes when they thought about the Bakken Shale boom of 2013-2015 and started to build furiously in the Williston metro. Some 2,287 new units opened in 2014-2015 combined, more than in Cincinnati, Cleveland, Oakland, Memphis and Birmingham, among others.

Some of those new properties are still under construction or in lease-up, with 95 units slated to open this year on top of 632 in 2016. Nothing else is in the pipeline, though.

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The oil industry has bottomed out from the sting of 2014-2016. As long as rig counts keep rising, jobs will be added and apartment demand will increase. Midland and Odessa are already strengthening. North Dakota could be ready for its bump. The refinery and business centers could be next.




Dave Sorter

Dave Sorter


Dave Sorter is an award-winning journalist who spent 30 years as a newspaper reporter and editor before joining Axiometrics. He oversees all Axio blogs and newsletters and serves as senior editor of all Axio publications.

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