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Houston Apartment Market’s Operable Stock Essentially Full in September

Rent Growth Returns to Positive Territory

By Jay Denton and Greg Willett | Tuesday, October 10, 2017

Houston apartment market hurricane damage

A month or so after Hurricane Harvey, Houston’s apartment occupancy and rents are trending upward once more. However, pricing is not spiking, partly reflecting that the metro’s major owners and operators of apartment product recognize the importance of assisting displaced households as the rebuilding process begins. 

Metro Houston’s overall occupancy rate in the September performance survey comes in at 93.0%, up 82 basis points (bps) from the August result of 92.2%. These findings suggest the operable apartment stock is as much as 98% to 99% full, as RealPage’s count of apartments temporarily offline because of Hurricane Harvey points to a figure that could reach up to 43,000 units. 

Among properties in initial lease-up, average monthly leasing per property surged to 25 units in September, the strongest performance posted by projects moving through initial leasing since mid-2015. Furthermore, the total number of just over 2,500 units leased in properties still building their initial resident bases in September is the biggest total monthly figure achieved throughout this economic cycle.

PostHurricane Harvey absorption-Units

Post-GHurricane Harvey absorption chart

September’s effective rents for new Houston apartment leases jumped 1.5% over August pricing. The increase pushed Houston’s annual rent change, which had been running in negative territory, to just over the breakeven point. September 2017 rents top September 2016 rates by 0.2%.

Houston apartment market ERG chart

Quite a few of Houston’s largest apartment operators report to RealPage that they froze their rents at pre-hurricane levels for most of the month of September, or they placed caps on movement to hold increases to just a few dollars. Shifting into October, they tend to be returning to standard pricing practices, so a better indication of how quickly rents are likely to rise could come over the next few weeks.

Operators, further, are reporting to RealPage that they are paying close attention to lease term as households displaced by the flooding move into new accommodations. While operators want to provide the best solutions for individual households, they also must be careful not to schedule too many additional leases expiring in a short time frame.

Houston’s biggest turnaround in apartment market performance registers in the Class A product sector. That’s not surprising, as Class A results previously were held back by the big blocks of new supply that have been coming to market. Annual rent change for top-tier product moved to 0.7% as of September, compared to levels of -1.5% in August and -7.2% September 2016. Class A community occupancy jumped to 94.7% in September, up from 93.1% in August and 92.7% in September 2016. 

Class B projects register September rents that match year-earlier results, a big improvement from 2.1% annual rent cuts recorded a month prior. Occupancy is up to 93.4%, versus the 92.7% reading from August. 

Class C properties do not show any momentum in pricing power or occupancy.

Houston apartment market asset class effective rent growth

Houston apartments asset class occupancy chart

Obviously, numerous questions about Houston’s apartment market outlook remain. For example, how much short-term damage has the local economy incurred, and will rebuilding lead to the surge in job growth anticipated over the next few months? Where will the expected influx of construction workers come from, and where will those workers be housed? How quickly can properties now under construction make it across the finish line? Does the damage done by Hurricane Harvey change the way the Houston apartment market is perceived by capital providers, translating to some hesitancy to bankroll the next round of new supply? Will recent experiences lead to more development regulation for future building? 

Houston apartment market performance information highlighted here was collected in the last half of September, giving owners and operators time to assess the extent of damage to their communities and to move toward somewhat more normalized operations. Some operators reported that the number of units now offline exceeded initial estimates, as further inspection revealed additional apartments needing repairs. Product availability actually increased slightly late in the month, as vacant units that had been reserved for the owner/operators’ employees or for bulk corporate leases were not fully needed in some cases, resulting in those units being put back into the block of product offered to the general populace.

Houston apartment market rebuilding

Jay Denton and Greg Willett

Jay Denton and Greg Willett

Jay DEnton is Vice President of Analytics for RealPage's Axiometrics division, and Greg Willett is Chief Economist for RealPage.

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