First quarter absorption exceeds all of 2016’s leasing activity

Apartment demand in the Houston metropolitan area surged in 2017, according to Berkadia’s Q1 2017 Houston Multifamily Report. Residents newly occupied a net 4,916 apartment units during the first three months of the year – exceeding the net 4,423 units absorbed during all of 2016.

While the increase in traffic is largely positive, suggesting supply/demand equilibrium is within sight, the occupancy rate decreased this quarter due to apartment inventory growth, dropping 180 bps to 88.3%. Approximately 5,903 new apartment units have been delivered this year.

“We’re absorbing more apartment units than we thought we would, so that’s a good indicator that we’re heading toward a more balanced market,” said Ryan Epstein, Senior Managing Director, Investment Sales, in Berkadia’s Houston office. “If this level of absorption continues, it’s quite possible we’ll turn a corner and landlords will regain some pricing power in 2017.”

Those dynamics are also luring multifamily investors back to Houston, according to Epstein, who said his multifamily listings are generating more tours and bids than last year.

On the finance side, a decline in interest rates, along with the return of life companies and other lenders to Houston – is driving more deals, particularly refinancing, said Berkadia Senior Managing Director Tucker Knight.

“The general tenor among the lending community is that Houston is on the rebound,” said Knight. “Fannie and Freddie Mac remain extremely active, and while life companies are cautious, they are exponentially more active than there were in the latter part of 2016. Rates have plummeted 30 basis points in the past few weeks, so that dramatically impacts cash flows on acquisitions and refinancings – it makes a lot of deals work.”

Other highlights from Berkadia’s Q1 2017 Houston Multifamily Report:

• Effective rent increased 0.4% year over year, and stands at $976
• Rental demand was strongest in the Westpark/Bissonnet submarket ,where occupancy was a metro-high of 94.3%
• Builders are scheduled to bring 10,631 new units online by end of next year

About Berkadia®:

Berkadia, a joint venture of Berkshire Hathaway and Leucadia National Corporation, is a leader in the commercial real estate industry, offering a robust suite of services to our multifamily and commercial property clients. Through our integrated mortgage banking, investment sales and servicing platform, Berkadia delivers comprehensive real estate solutions for the entire life cycle of our clients’ assets.

To learn more about Berkadia, please visit www.berkadia.com.