Review: Major Texas Markets

The last 5 years have been a pretty good run in multifamily and especially so in Texas. Since 2011, 172,000 net units were absorbed in just the four markets of San Antonio, Houston, Austin and Dallas-Fort Worth. Each year seemed to surpass the last but it is starting to look like the win streak may be coming to an end. December, January and February are the off season for the Texas markets but the markets were particularly sluggish this winter in absorbing new units. To be sure, absorption should be fairly strong in 2016 but the year over year gains in occupancy and rents may be tapering for the Texas markets. Like job growth, in the last few years there was plenty of capacity for growth. But as a victim of their own success the pool of new renters may be winnowing just as more units are coming on the market. Here’s a look at the Texas markets.

It looks like the party may be over for Houston. Low energy and commodity prices may look like they are taking their toll on multifamily in this market. In the last 3 months the Houston market has lost a net 300 rented units and prices have flat-lined. Submarkets like Midtown and Memorial Uptown had flat absorption and saw average occupancy drop 3.6% and 7.0% respectively as a lot of new units came online. Overall the market gained a net 8000 net rented units from this time last year but it will need a stunning turnaround to hope to get close to that annual figure by this time next year.

Long the envy of multifamily markets everywhere, Austin may struggle to make 2016 another bright spot on its calendar. In the last 3 months the Austin area absorbed only 376 net rented units. Half of the submarkets saw occupancy drop in the last 3 months with the submarkets of West Campus and William Cannon taking the greatest hit in occupancy. Last Year Austin got off to a slow start and still managed to absorb 7,000 net units. However, I am not certain that they can repeat this feat. While effective rent growth was 6.3% over the last year, the last 3 months only accounted for 0.3% of that growth. Occupancy did nudge up 0.1% over the last 3 months as the introduction of new units took a hiatus but there is still plenty more in the pipeline for 2016. There may need to be more cost cutting to maintain occupancy in 2016.

Though the Dallas-Fort Worth market did absorb almost 3000 units over the last 3 months that is well off its recent pace of over 20,000 units absorbed annually. Effective rents are up 0.9% over the last three months but again are well off the annual pace of 6.7%. New Construction has pushed average occupancy below 90% in the uptown market as well as the suburban markets of Carrollton, Frisco and McKinney. In fact, almost half of the submarkets in the North Texas saw occupancy drop over the last 3 months.
While the diversification of the economy in North Texas has helped it overcome the drop in energy prices, many other things will have to come together to have this market repeat the gains of past years.

The San Antonio market absorbed over 500 units in the last 3 months which is pretty good for the off season. This pushed average occupancy up 0.2% to 89.3%. Some submarkets like Downtown and Boerne/Comfort saw new construction drive down occupancy over the last 90 days. Effective rent gains in San Antonio haven’t been as lofty as in the other Texas markets but that has helped it maintain more consistent occupancy numbers. Effective rents are up 4.9% per unit and 4.8% per square foot from this time last year. However, the last 3 months only saw effective rent growth of 0.3%.  Of all the large Texas markets I have the most confidence in San Antonio for 2016.

Corpus Christi, Lubbock and Waco all had a winter to forget though absorption is up for the last 12 months in those markets. Amarillo and College Station, however, had strong absorption over the last 3 months. Midland-Odessa seems to have finally stabilized the losses due to the fall in oil prices, yet rents have dropped 6.5% in just the last 3 months. College Station and Corpus Christi each had large gains in prices over the last 3 months with 2.9% and 1.6% gains respectively.

Judging a market by the off season months isn’t totally fair and the Texas markets may still turn in solid numbers for 2016. However, this time I just feel that there are stronger headwinds going into the spring and summer months for the Texas markets than there were in years past.