Q3 2022 Multifamily Real Estate Report: Houston, TX
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Houston multifamily real estate has cooled down from last quarter.
Q2 2022 had over 3,300 units of net absorption, while this quarter had a little over 740 units, approximately a 77.5% reduction. However, vacancy rates have remained low, falling to 5.5% in this quarter.
Over the past year, Houston’s job market has seen a growth in excess of 6%, adding over 46,000 jobs over the later months of 2022.
General Area Overview & Demographics
Houston is a diverse city, with a population of more than 2.3 million people and approximately 100 languages spoken. Houston’s population has grown exponentially since 2000 due to its strong economic growth, job opportunities, and numerous cultural amenities.
Houston has seen an influx of immigrants from Mexico, India, and China in the past two decades; Houston’s foreign-born population now accounts for 17% of the city’s total population.
The Houston metro area is home to a large number of young professionals from around the world: Houston is the top destination for millennials in Texas, and Houstonians ages 25–34 make up 18% of the population.
Houston is also one of the most racially diverse cities in America; nearly 40% of Houstonians are Hispanic or Latino, 29% are white, and 18% are African American or Black.
In addition to its demographic diversity, Houston has attracted many entrepreneurs over the years—the city ranks as one of Forbes’ top 10 cities for startup activity. This entrepreneurial spirit has helped fuel Houston’s robust economy.
Houston’s economy continues to accelerate, attracting companies from all sectors—from energy to technology—to set up shop in the nation’s fourth-largest city. With a growing labor pool and competitive cost structure that makes it attractive for businesses looking to expand their operations or relocate entirely, Houston will continue to be a dynamic real estate market into 2022 and beyond.
Houston has a subtropical climate with hot, humid summers and mild winters. The city experiences its highest temperatures from June to August, with an average daily high of 94°F (34°C) and a low of 75°F (24°C). Houston also receives severe thunderstorms due to its proximity to the Gulf of Mexico.
Summary of Houston Multifamily Real Estate Performance in Q3 2022
After reaching a historic low of nearly 3.5% in the first quarter, vacancy rates are expected to continue rising upwards of 5% by year’s end due to decreased household formation moving forward.
Houston’s multifamily market has settled in the last three months. Despite a decrease in sales velocity from Q2 to Q3 of this year, transaction levels remain higher than they were at the same time last year—pointing toward continued growth.
Prices have steadily increased since early 2022, indicating that despite quarterly volatility, there is strong confidence in the local real estate sector.
The Greater Heights-Washington Avenue submarket saw a robust 11% annual growth in apartment supply and a 170 basis point decrease in vacancy. The Spring-Tomball area experienced similar success, as its local inventory expanded by 6%, yet availability declined 180 basis points.
Additionally, Conroe-Montgomery County maintained low vacancy through an 8% year-over-year surge in rentals.
What Are Multifamily Rents Like in Houston?
Q3 witnessed a slight rise in rental rates and significant drops in deliveries: Average rents rose to $1,260/month while 2,230 fewer units were delivered, an almost 43% drop compared to the previous quarter.
According to the latest figures, rents in Houston’s metropolitan area have seen 7% growth over the last year, burdening Americans in the city.
Houston’s Montrose/River Oaks submarket continues to experience an increase in rental rates, with a 10% jump from last year now placing them at around $1,700 monthly.
Purchase & Leasing Activity
Multifamily real estate in Houston prices are on the rise. The median sales price of units this year has reached $168,000, a 30% increase from 2021. Additionally, the Houston multifamily market’s sales momentum diminished in the third quarter, experiencing a 35% decrease from the last.
However, transactions have grown 15% this year, outperforming totals from the same time period in 2021, with nearly twelve apartment assets built in the last three years being sold in the third quarter.
Notable Multifamily Real Estate Deals in Houston in Q3 2022
Several notable multifamily deals were in process in the third quarter.
- 22 units from Jackson Square in Downtown Galveston sold;
- 72 units from Creekside Apartments in Prairie View went under contract; and
- 45 units from Tiffany Bay in Clear Lake went under contract.
These are among other notable sales transactions and leases.
New Multifamily Real Estate Development Activity in Houston in Q3 2022
Apartment delivery speeds are up, with 4,300 units newly added in the last quarter.
Developers have already completed over 10,000 units this year and are on track to deliver even more in the months ahead. Demand remains high as they strive to meet consumer needs.
An additional 867 units are under construction and planned to be available towards the end of 2022 and into 2023.
Market Forecast for Houston’s Multifamily Real Estate Market
Houston’s multi-family market is projected to remain strong for the remainder of 2022, continuing its performance.
The local economy has grown remarkably, and employment levels have seen an increase as a result despite employees heading back to the office. However, this growth will likely slow down in the upcoming months and into 2023.
Although there may be some tapering off in this demand as time goes on, asking rents for sought-after rentals will remain on an upward trend.
Investor demand for multifamily real estate in Houston is expected to remain healthy through the remainder of this year and into 2023. With economic growth cooling across several markets, the Houston area’s rapid expansion should drive above-average performance in the coming years.
Takeaways for Multifamily Real Estate Investors
Houston’s multifamily real estate market is set to shine this year and beyond. While economic growth is slowing across the nation, investors can expect to see robust prospects in Houston.
An investor positioned to get into this market at this time should consider doing so.
As always, research and due diligence are always required for each to make their best decision.
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