At the national level, the apartment demand resurgence that began in the back half of 2020 has continued through the first four months of this year. This demand has allowed for the reemergence of rent growth, even despite elevated deliveries compared to recent years. Of course, market-level results are quite disparate. As part of our ongoing series evaluating specific markets, Houston is up next.

As always, only conventional properties of at least 50 units will be included.

New Supply and Net Absorption

Unlike the nation as a whole, deliveries through April for the Houston market are down compared to last year, though, the pipeline has remained quite active. Around 5,300 new units were delivered through the first four months of the year after just over 6,000 new units were brought to market through April of 2020. The Greenway Plaza and Midtown – Montrose – Museum District submarkets added the most new units, with about 950 and 850 new units, respectively. Overall, less than one-third of Greater Houston submarkets had any new supply in the period.

Multifamily demand was more than sufficient to offset these new units. As a result, average occupancy rose by 0.6% to 89% to close April. That average occupancy gain was better than in the same portion of not only 2020, but 2019 as well. Net absorption totaling almost 7,800 units represented quite a bounce back compared to last year when less than 2,000 net units were absorbed through the first four months of the year with the pandemic in its early days. This year’s level of demand was also nearly 50% higher than that from 2019. The bulk of the absorption, around 6,600 net units, came from Class A and Class B properties.

Average Effective Rent and Lease Concessions

Many markets around the country saw demand rebound in the second half of last year, but not rent growth. This year, with sustained robust demand and improving market conditions related to the economy and the pandemic, rent growth has returned. Houston is a market that has fit this paradigm. After losing about 0.5% in average effective rent last year, the area gained 2.3% through April of this year. That gain was obviously better than last year’s, but it was also more than double the increase from the first four months of 2019. In terms of price class, the strongest growth was in the higher tiers, while Class D properties lost 0.4% at the average. The Memorial – Uptown, Heights, and The Woodlands – Far North submarkets each gained at least 5% in average effective rent – led by a nearly 9% gain in the Memorial – Uptown area.

One factor that has aided rent growth is an encouraging, though small, decrease in reliance on lease concessions. Concession availability remains elevated with 40% of conventional properties offering a discount, but availability is down almost 5% from the start of the year. Similarly, though the average discount value remains above the national average at a little more than 3.5 weeks off a 12-mnth lease, there was an almost 5% decrease in that average value to start the year. Even though these reductions are not huge, and overall availability and value of concessions remain high, it is an encouraging sign to see a break in their upward trajectory.

Takeaways

2020 was a rocky year for Houston multifamily to be sure. An unfortunately timed increase in new supply was met with muted demand thanks to the COVID-19 pandemic and the fallout from the associated response measures. The result was substantially increased lease concessions and negative rent growth for the year. Through April of 2021, the picture has been quite different. Deliveries were down compared to last year, demand was very strong, and rent growth roared back to the tune of more than 2% growth. With the continued rollout of the COVID-19 vaccine and increasing economic activity, the Houston market appears to be well-positioned for a bounce back year in 2021.

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