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Houston’s multifamily market continues to deal with weak absorption, flat to negative rent growth, and overbuilding. Overall apartment absorption was nominal in September, however, all but Class A quality properties saw declines in occupancy over the past 12 months. Negative absorption occurs when more units are vacated than occupied. That’s been the case in Houston for well over a year now.
Occupancy rates for Class A apartments have ticked up in recent months but declined year-over-year. Class B, C, and D rates continue to decline. Any rate above 90 reflects a landlord-friendly market, below 90 a tenant-friendly market.
Prior to the pandemic, rent growth averaged 4.0 percent per year. In ’21, as Houston emerged from the pandemic, rents grew on average 14.0 percent. This year, rents have been flat to declining. Weak occupancy has limited rent growth, putting additional pressure on landlords already facing rising insurance, personnel, and maintenance costs.
Developers continue to deliver new properties to the market. As of early October, there were 23,638 units across 91 properties under construction; 19,730 are slated for delivery over the next 12 months.
An industry rule of thumb holds that the Houston market can absorb one apartment unit for every five to six jobs created. That suggests the region will need to create 100,000 to 120,000 jobs over the next 12 months to absorb all the units currently under construction. Preliminary forecasts by the Partnership suggest job growth will fall well below that pace next year.
Houston is performing marginally better than other Texas metros, with Austin, Dallas/Fort Worth, and San Antonio experiencing weaker absorption rates and greater declines in rental growth over the past 12 months.
Prepared by Greater Houston Partnership Research Department
Patrick Jankowski, CERP
Senior Vice President, Research
Number of Class A units absorbed October '22 - September '23.
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