April 14, 2016 Comments Off on Multifamily Markets: Contrasts in Texas Views: 396 California News, National News, Southwest, Texas

Multifamily Markets: Contrasts in Texas

Special from Capital One

In 2013, Forbes magazine ranked Houston second on its “Best Cities for Good Jobs” list, citing the shale revolution that spurred demand for drilling contractors, supplies, and related financial services. Considered by many to be the energy capital of the world, Houston was the right location at the right time for multifamily.
Three years later, the overall economy – and the multifamily market – have seen a pronounced downturn. The Houston-The Woodlands-Sugar Land Metropolitan Statistical Area (MSA) is in the grip of an economic slump driven by a dramatic decline in oil prices. As a result, fewer jobs are being created, and owners of high-end apartments are offering concessions, something that was unheard of even a year ago.

The booming economy in the Dallas-Fort Worth-Arlington MSA offers a striking contrast.

Companies are flocking to North Texas to build large corporate campuses, pushing the job-growth rate and multifamily rent growth and occupancy rates above the national average.

The contrast between Dallas and Houston reflects fundamental differences in their economic bases. Dallas-Fort Worth is home to many industry sectors, from finance to manufacturing, from insurance to construction. However, Houston’s economy is heavily dependent on oil and energy.

Houston: The Oil Economy

In the third quarter of 2013, oil prices were robust, at $103.25 a barrel. By the fourth quarter of 2015, they had plunged to $41.94 and have subsequently settled even lower, between the $30-$45 range.

A decline of this magnitude has significant negative consequences on an energy-based economy, like Houston. The Bureau of Labor Statistics reported that Houston’s annual job-growth rate fell from a robust 3.6% in February 2015 to 0.3% just a year later. Although the economy added 23,000 jobs in 2015, this growth represents a significant slowdown from the 100,000-plus jobs generated in 2013.

Some signs of life are stirring in the region, according to Clay Wright, a senior vice president in Capital One’s Commercial Real Estate Group in Houston. Petrochemical factories are being built along the coast in Southeast Houston, where Dow Chemical, Chevron Phillips Chemical, LyondellBasell, and ExxonMobil Chemical are spending billions on ethylene and propylene plants. “This will mean a boost to construction jobs, followed by an increase in petrochemical jobs,” Wright said.

The healthcare sector is also strong, thanks to the concentration of hospitals and clinics in Houston’s well-regarded Medical District. Its 106,000 employees make it the eighth-largest business district in the United States. Maritime employment is also set to rise. “The Port of Houston is a large employer,” Wright said. “Once the Panama Canal Expansion is completed, this will add more jobs to the region.”

Nonetheless, the job creation fall-off has had an impact on the multifamily market. As seen on the chart below, both the annual effective rent growth and occupancy rate are lower on a year-over-year basis.

The region added 15,621 units in 2015, according to Axiometrics, and an additional 17,368 units are expected to come online in the coming year. Some of the projects currently in the pipeline and set to deliver in 2016 are the 361-unit Catalyst in downtown Houston, the 270-unit Avenue Grove in the Montrose-River Oaks submarket, the 400-unit 500 Crawford in the Interloop submarket, and the 264-unit Crenshaw Grand in the suburb of Pasadena.

However, until the new supply is absorbed and more jobs are created, lower rent growth and occupancy rates are likely to continue through the remainder of this year and into 2017. As a result, some developers are putting the brakes on planned projects. Apartment REIT Camden Property Trust recently delayed a massive downtown project, and Hanover Co. is also halting Houston apartment development for the time being. As many as 50 multifamily projects are on hold, as developers wait for more favorable economic indicators.

“There isn’t a whole lot of equity looking to enter Houston right now,” Wright observed. “Long-term investors are bullish, but in the short term, people will take a pause to see what happens.”

Read on to see how Dallas’ and Austin’s dynamic growth compares.

Read Full Article at Capital One

Connect with Capital One’s Wright

Share on FacebookTweet about this on TwitterShare on LinkedInEmail this to someone

Tags: , , , , , , ,

Comments are closed.