Apartment dynamics shift in Houston during 2018. It has 12,600 units Construction:
been one year since Hurricane Harvey rains flooded thousands will be completed Deliveries remain on a downhill
of Houston homes, pushing many displaced residents into local slide for a second consecutive
apartments. Over 14,000 units were absorbed during the fourth year as total completions fall
quarter of last year, resulting in a 200-basis-point year-over-year below the nearly 19,400 units
drop in vacancy to 5.8 percent. As tenants have moved back brought online in 2017.
into repaired homes over the past three quarters, the market’s
apartment vacancy rate has ticked up to 6.2 percent, remaining 60 basis point Vacancy:
well below the rate of more than 7 percent operators experienced The positive absorption of 7,700
increase in vacancy
following job losses in the energy industry from 2015 through apartments this year is outweighed
2016. Energy-related firms have begun hiring again, however, by supply additions, and vacancy
and a stronger pace of job growth encourages healthy housing will rise to 6.4 percent. Last year,
demand through the remainder of the year. the rate fell 200 basis points.
Thinning construction pipeline met with economy turning 2.9% increase Rents:
the corner. Of the 12,600 apartments scheduled to come online Following a 6.7 percent ad-
in effective rents
in Houston this year, 6,000 are estimated for delivery in the final vance during 2017, the average
quarter. As a result, vacancy is anticipated to end the year up effective rent in Houston will rise
from 2017. The increase in the rate this year should be short to $1,103 per month this year.
term, as completions appear to dip dramatically during 2019 and
increased housing demand stemming from a growing economy
will continue to filter into apartments.
Investment Trends
Local Apartment Yield Trends • Low vacancy and strong rent growth among the market’s Class
B and Class C properties are attracting strong buyer interest.
Apartment Cap Rate 10-Year Treasury Rate
Buyer competition has compressed yields for these properties,
and depending on asset location and condition, first-year
12%
returns can range from 5 percent to 6 percent.
9% • A bright economic outlook, healthy property operations and
average returns that are the highest of the state’s four largest
Rate
6%
metro’s are luring both in-state and out-of-state investors to
3% Houston apartment assets. Increased demand led to a 30
percent rise in sales activity over the past year.
0%
* 00 02 04 06 08 10 12 14 16 18* • A busy port, oil and gas refineries, and a petrochemical boom
have attracted numerous investors to east, southeast and south
Houston, along the Texas Gulf Coast. Over the past 12 months,
Sales Trends cap rates for apartment assets in the area averaged 50 to 100
Sales Price Growth
basis points higher than properties in the core, as well as to the
north and west.
Price per Unit (000s)
$90 12%
$60 8%
Houston
3Q18 – 12-MONTH PERIOD
Employment Trends EMPLOYMENT:
Local Apartment Yield Trends
Metro United States 4.3%
Apartment Cap Rate in total
increase 10-Year Treasury Rate
employment Y-O-Y
6%
Year-over-Year Change
• Houston
12% employment led the nation over the past year
4% as 128,600 positions were created through September.
9%
Professional and business services added 33,000 em-
2%
ployees, the most positions over the past year, while con-
Rate
6%
struction payrolls grew by 29,400 workers.
0%
3%
• The market’s unemployment rate tightened 50 basis
-2% points year over year to 4.2 percent in the third quarter.
0%
14 15 16 17 18* 00 02 04 06 08 10 12 14 16 18*
Year-over-Year Growth
approximately 50 percent when compared
$90 12% with the
Units (000s)
24
previous year. The Downtown/Montrose/River Oaks
$60
submarket has received the largest8%share of new
16
deliveries, approaching 2,000 units this year.
$30 4%
8
• The construction pipeline has thinned, and nearly 13,100
0 units are under construction across the
$0 0%market.
14 15 16 17 18* 14 15 16 17 18*
8%
Metro United States 120 basis point decrease in vacancy Y-O-Y
7%
• Vacancy remains compressed following strengthened
Vacancy Rate
* Forecast
Multifamily Research | Market Report
DEMOGRAPHIC HIGHLIGHTS
3Q18 MEDIAN HOUSEHOLD INCOME 3Q18 AFFORDABILITY GAP MULTIFAMILY (5+ Units) PERMITS
*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2017-2022 Annualized Rate
• Increased
9% sales activity of higher-priced properties
Galveston/Texas City
2%
4.7% 30 $952 8.1% also led to a 12 percent hike in the average price per
Rate
SALES TRENDS
unit, reaching
6% $108,600 per door over the past year.
Gulfton/Westbury 5.1% -140 $972 6.0%
0%
Outlook:3%Listings could rise as loans come due, and
Humble/Kingwood 5.3% -210 $1,057 3.8% investors weigh the option to refinance at greater
-2%
interest 0%
rates, alongside rising property taxes and higher
14 15 17 18*
Spring/Tomball 5.4% -150 16 $1,128 8.3% 00 02 04 06 08 10 12 14 16 18*
insurance premiums as floodplain maps are redrawn.
Washington Avenue
$90 12%
Units (000s)
24
Bear Creek 5.5% -210 $1,053 5.0%
$60 8%
16
The Woodlands 5.5% -40 $1,284 6.6%
$30 4%
8
Overall Metro 6.2% -120 $1,104 6.9%
0 $0 0%
14 15 16 17 18* 14 15 16 17 18*
7%
Multifamily Research | Market Report
CAPITAL MARKETS
Baltimore Office: Fed meeting. After the Federal Reserve lifted overnight rates and
Fort Worth Office:
maintained a positive economic outlook, long-term interest rates have
Matthew
Apartment Drane Regional
Mortgage Manager
Originations
100 E. Pratt
By St.,Lender
Suite 2114 pushed higher. The 10-Year Treasury
Kyle Palmer Vice President/Regional Manager
yield has quickly traded toward
Baltimore, MD 21202 300the 3.25 percent
Throckmorton Street,range, which is prompting lenders to pass on the
Suite 1500
100% Tel: (202) 536-3700 | matthew.drane@marcusmillichap.com (817) 932-6100 |cost
kyle.palmer@marcusmillichap.com
increased to borrowers. However, fierce competition for loans is
Boston Office:
Percent of Dollar Volume
Michael Glass First Vice President/District Manager Eric Molfetta Regional Manager
3800 Howard Hughes Parkway, Suite 1550
5005 Rockside Road, Suite 1100
Las Vegas, NV 89169
Independence, OH 44131
(702) 215-7100 | eric.molfetta@marcusmillichap.com
(216) 264-2000 | michael.glass@marcusmillichap.com