Houston

Construction Slowdown Relieves Vacancy,

Rent Pressure Amid Household Growth

Job, population expansion drives multifamily demand. The Houston

Employment Trends
metro has grown substantially over the past cycle, adding new households at
Absolute Change Y-O-Y % Change
nearly triple the national pace since 2010. Houston’s position as a prominent
150 6%
center of global trade has led to employment opportunities in the energy,
manufacturing and transportation sectors, bolstering population growth.
Total Nonfarm Jobs (thousands)

100 4% As the market expanded, demand increased for healthcare, education and

Year-over-Year Change
professional services, adding even more to job creation. The need for housing
50 2% has risen at a commensurate rate, and as the typical mortgage payment on
a median-priced home is more than $600 above the average monthly rent,
0 0% many people are leasing apartments. Renewed absorption will help lower
vacancy below the trailing five-year average and sustain rent growth slightly
above the U.S. measure.
-50 -2%
15 16 17 18 19*
Focus on demand propelling investment capital. Houston is one of the
top employment markets in the nation and its phenomenal population
and household growth rates keep institutional and private capital sources
squarely focused on adding acquisitions. So far this year, buyers have looked
beyond the short-term vacancy adjustments due to flood-damaged units
Housing Affordability Gap returning to the market, which depressed rents, and focused on the elevated
Mortgage Payment Effective Rent long-term multifamily demand prospects for the region. Thus, the uplifted
$2,000 pace of transaction activity and investor interest witnessed in 2018 has
been maintained in the first half of this year. Houston’s deep multifamily
$1,500 inventory has also helped significantly in keeping a wide pool of investors
Monthly Payment

and investment strategies engaged. The metro offers a wide range of asset
$1,000 types for acquisition such as new infill mid-rise properties, value-add garden
properties and stabilized assets in high-growth employment corridors.
$500
Investor focus has been the highest for properties in western submarkets
in and around the Energy Corridor, with northwestern submarkets also
garnering heavy sales activity. Over the past 18 months, the average cap
$0
rate has trended downward from 5.8 to 5.3 percent, reflecting the renewed
10 11 12 13 14 15 16 17 18 19*
investor interest in the Houston metro and positive long-term outlook.

Supply and Demand

Completions Absorption
36

27 21.5% 2019 2Q share of local population

between 20 and 34 years old
Units (thousands)

2018 population 25+ years old with a

18
30.8% bachelor’s degree or higher
9

$241,954 2019 2Q median home price

0
15 16 17 18 19**

* Forecast
** 2Q
Sources: IPA Research Services; RealPage, Inc.

32
 Houston

2019 Investment Outlook

The Key Performance Index in the first half of the year saw one-point Key Performance Index
advance in rent growth, which should help set the stage for operational 10
improvements for multifamily in the second half of the year.
8
The transaction side of the index remained stable and highlights the
enduring demand for capital inflows. With liquidity at 7, acquisition 6
opportunities should remain plentiful.
4

0
Note: The Key Performance Index provides a metro-level relational benchmark scaled from 1-10 for
five key metrics. Supply Demand Rent Liquidity Yield
Growth

2019 Midyear Market Forecastv Vacancy By Class

Class A Class B Class C

NMI Rank 21 16%

12%
Vacancy Rate

Employment Metro 3.2% 8%

101,000 jobs U.S. 1.3%

4%

0%

Construction Metro 0.8% 07 08 09 10 11 12 13 14 15 16 17 18 19*

as % of inventory U.S. 1.8%

z
Vacancy Metro 6.8%
U.S. 5.5% Rent Growth By Class
Unchanged
10-Year Average 2019 Forecast

8%

Rent
z Metro 3.0%
$1,576 per month U.S. 3.2% 6%
Rent Growth

4%

2%
Investment Deals: 95
3-yr. avg. activity Volume: $3.6 billion
0%
$20+ million
Class A Class B Class C

* Forecast zClass A
Arrow reflects trend compared with 2018
v

Sources: IPA Research Services;

CoStar Group, Inc.; RealPage, Inc.; Real Capital Analytics

33