Houston apartment rents will continue to climb in 2015

Houston apartment rents aren't going down anytime soon, according to a market report by Transwestern.

The Houston-based real estate firm released its 14th annual Trendlines report, which looked at emerging trends in the Houston commercial real estate market. In the multifamily sector, the city's job growth and subsequent population boom has resulted in skyrocketing rents and a construction frenzy.

Here's what you need to know about Houston's multifamily market.

Demand:

Houston is seeing high demand for new apartments, and that will likely continue in 2015.

The Bayou City absorbed about 14,760 units year-to-date by September, according to Transwestern. Although Houston absorbed about 1,400 fewer units compared to the same period last year, it's still higher than its historical average.

Demand for new apartments is highest in the Katy/Far West, The Woodlands/Far North, Medical Center/Bellaire and Inner Loop West/Greenway Plaza submarkets.

Vacancy rates:

Houston's apartment vacancy rates remained steady from last year at 9 percent, which is down significantly from the 16.1 percent high in 2009 – the heart of the Great Recession, according to Transwestern. Vacancy rates in the Bayou City are now approaching pre-recession levels.

Class A properties posted the highest vacancy rates (18.3 percent), likely due to new supply entering the market. Class B and C had the lowest vacancy rates at 6.3 percent and 6.5 percent respectively, according to Transwestern.

The following hot submarkets saw the biggest drops in vacancy rates: the Heights, Inner Loop West, Medical Center/Bellaire and Conroe/Montgomery County

New construction:

Houston is seeing a frenzy of new apartment construction.

Over the past 12 months, developers have delivered 73 apartment communities, totaling 20,197 units. Sixty-one communities with a combined 24,562 units are currently under construction, and another 61 communities with 18,282 units are proposed for Houston.

Apartment building activity is concentrated in the following submarkets: Montrose/Museum District, Katy/Far West, West Memorial/Briar Forest and Inner Loop West/Greenway Plaza.

Rental rates:

Houston is experiencing some of the highest rent increases among major metropolitan cities, which is squeezing out the middle class. Only Dallas/Fort Worth and New York had higher rent increases than Houston.

The average rent in Houston during the third quarter was $920 per units, or $1.05 per square foot. The annualized average rent in the Bayou City has increased 7.1 percent since year-end 2013, according to Transwestern.

The rent increases are primarily due to new Class A apartments that are entering the market, which is driving rents across all apartment classes higher, according to Sandy Paul, the executive vice president of Delta Associates, Transwestern's research arm.

"This new product is driving rents higher," Paul said.

These submarkets saw the highest rent increases during the third quarter: Galena Park/Jacinto City, Lake Houston/Kingwood, Westchase, Galveston/Brazoria, and Bear Creek/Copperfield.

The key takeaway:

Houston's population growth will likely continue as the city's job growth attracts new residents. These new Houstonians will need places to live, driving demand for new homes and apartments.

The population growth will keep vacancy rates in check even as developers deliver new apartments into the market, according to Transwestern.

"With the enduring velocity of job creation, Houston should continue to experience success across all multifamily asset classes," the report said.

Works cited : https://www.bizjournals.com/houston/news/2014/11/21/report-houston-apartment-rents-will-continue-to.html?iana=ind_rre&page=3