Houston’s multifamily market is performing “surprisingly” well despite the downturn in oil prices, according to CBRE Group Inc. (NYSE: CBG).
By: Paul Takahashi, Houston Business Journal
“We’ve had more supply than demand, no question about it,” said Hal Holliday Jr., executive vice president with CBRE Houston’s debt and structured finance division. “ But it’s still been a good year.”
Houston’s multifamily market is performing “surprisingly” well despite the downturn in oil prices, according to CBRE Group Inc. (NYSE: CBG). SkyHouse River Oaks, shown here near Westheimer Road and the 610 Loop, opened earlier this year.
Although developers are expected to deliver another robust 26,100 new apartment units this year, Houston’s multifamily occupancy rate is hovering around 91 percent. With such a high volume of new construction, it wouldn’t be surprising if Houston’s occupancy rate was lower — in the high 80 percentile. However, renters have exceeded expectations so far, Holliday said.
“The 91 percent is taking into account new deliveries,” Holliday said. “That’s a very good level of occupancy.”
Houston’s apartment absorption in spite of all the new construction also is “surprisingly good,” Holliday said.
Houston has absorbed 13,100 units so far this year and is on track to absorb about 14,000 units total for the year, Holliday said. While that’s much lower than the 16,077 units absorbed last year, the current level of absorption is still a “very good performance,” he said.
However, Houston is facing an oversupply of apartments, Holliday said. Developers are expected to deliver another 16,000 new units next year, exacerbating the supply of apartments in Houston, he said.
“Supply exceeds demand by a little this year,” Holliday said. “Supply will exceed demand by a lot next year.”
However, there’s a silver lining, Holliday said. The pipeline for future projects is drying up as institutional capital for new projects has evaporated during the oil slump.
“Projects don’t get built without institutional equity, and that game is mostly over,” Holliday said. “ You need to have an absolutely fabulous story if you’re going to do a development deal now.”
Houston has only 1,900 proposed units currently under construction for delivery in 2017, Holliday said. The lower levels of new construction should help right the supply-demand equation, he added.
“By the end of 2017, we will be approaching a state of equilibrium,” Holliday said. “It’s crystal clear the market will come into balance in 2018.”
Paul Takahashi covers residential and multifamily commercial real estate for the Houston Business Journal.