Houston Apartment Market Fundamentals
June 2006
By Leslie Countryman
Sr. Market Analyst, O'Connor & Associates
We are finally beginning to see a slow down in Houston's multifamily market, as the once prominent aftereffects of Hurricane Katrina wane. First quarter overall absorption was in the red, as -1,756 units were absorbed. This is in stark contrast to the previous two quarters, where a record 17,043 units were absorbed during the 3rd quarter of 2005 in the immediate aftermath of the Hurricane, and another 6,868 units were absorbed in the 4th quarter of 2005. The Class A and B markets are particularly feeling the sting of dwindling post-Hurricane demand, as -1,344 and -959 units, respectively, were absorbed in the first quarter. Considering the Class A and B markets experienced the greatest surge in demand post-Hurricane, it is to be expected that demand in the respective markets would be volatile with the continued rebuilding efforts and as more companies have resumed operations in the Gulf Coast area.
As to be expected with significant negative absorption figures, occupancy also fell significantly over the quarter, losing 0.72 points. However, at 91.00%, occupancy remains above the all-important 90% threshold and is still a remarkable 4.74 points higher than it was one year ago. Despite the downward trends observed in absorption and occupancy figures, rental rates increased, posting a $0.003 per square foot (psf) gain during the quarter. At $0.821 psf, overall rents are $0.023 psf higher than those seen last year. We expect the same trends seen during this quarter to be present during the next few quarters, while remaining evacuees continue to trickle back home. Occupancy will likely drop further and stabilize around the 90% mark, while rents will likely continue to creep upward. Taking into account the diminished demand from Hurricane Katrina evacuees and the amount of newly constructed units entering the market, absorption will likely be soft in the near-term, however, with an ever-strengthening job market, record energy prices, and climbing interest rates, Houston's multifamily market is poised to remain in good health.
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