• Occupancy up quarter over quarter, down annually
• Absorption increased quarterly and annually
• Average rents rose over the year and over the quarter
• Inventory increased by 16,969 units March ‘20 to March ’21
According to Emsi Labor Analytics, as of 2020 Houston’s regional population has increased by 7.5% since 2015, growing by 500,885. Population is expected to increase by 7.6% between 2020 and 2025, adding 544,540. From 2015 to 2020, jobs increased by 2.3% in Houston-The Woodlands-Sugar Land, TX from 3,276,633 to 3,350,731. This change outpaced the national growth rate of 1.3% by 1.0%. As the number of jobs increased, the labor force participation rate decreased from 62.9% to 60.6% between 2015 and 2020. Concerning educational attainment, 21.0% of Houston-The Woodlands-Sugar Land, TX residents possess a Bachelor’s Degree (1.0% above the national average), and 7.3% hold an Associate’s Degree (1.3% below the national average). The top three industries in 2020 were General Medical/Surgical Hospitals, Education/Hospitals (Local Government) and Restaurants/Entertainment.
Houston’s overall occupancy rate increased 40 basis points over the quarter. The average monthly rent rose from $1,041 to $1,056.
Pricing & Sales Volume
Houston’s multifamily investment sales volume increased 24.1% over the quarter between Q4 2020 and Q1 2021 according to our data provider, Real Capital Analytics. The increase in volume reflects a positive change in market conditions when compared to the year over year volume decrease of 42.9% between Q1 2020 and Q1 2021. When comparing Houston to the U.S., Houston’s quarterly volume increase was significantly greater than the 0.6% increase in U.S. quarterly sales volume.
Houston’s average sales price per unit increased by 14.4% over the year from $126,969 to $145,273. The U.S. average price per unit increased by 0.4% over the year from $173,617 in Q1 2020 to $174,406 in Q1 2021.
Average Price per Unit
Houston Sales Volume ($)
Houston’s multifamily cap rates remained at 5.1% over the quarter, but decreased over the year by 30 basis points. In comparison, the average U.S. cap rate decreased 10 basis points over the quarter from 5.1% to 5.0% and dropped 40 basis points on an annual basis from 5.4%.
Average Cap Rate
Commentary by Chip Nash
In the last 90 days, interest in Houston Multifamily has spiked considerably from where it has been for the past 24 months. Investors are anxiously searching for opportunities to invest their equity and the market has responded with numerous new offerings. Contrary to the previous twelve months, investors now have multiple opportunities to consider, spurring spiked pricing and pushing cap rates to lower numbers than seen at the beginning of 2021.
We expect sales volume to continue to increase as investors are priced out of buying opportunities in other markets both nationally as well as within the state of Texas. Low cap rates in Dallas and Austin have driven investors to Houston. The volume of inbound calls from out of state and new to the market investors is astonishing. We estimate that as much as 75% of the properties sold this year could go to investors that don’t currently own here. We believe there will be an increased demand for value-add properties where cash on cash yields are expected to grow once rehab improvements and unit upgrades are completed, thus giving investors a boost in performance and yield and gains in occupancy. As job creation and employment continue to rebound, apartment owners expect to push rents accordingly as new supply drops off late in the year.
The gap in cap rates for older value-add properties versus newer stabilized properties continues to narrow. Interest rates remain very attractive and agency lending has stepped up recently and is competing favorably with debt funds for well-located apartment properties. We see this continuing through at least the end of the 4th quarter.
Ashford LakesColliers Houston Multifamily Advisory Group is pleased to announce the exclusive listing of Ashford Lakes, an upscale, Class A, Value-Add Opportunity in the heart of West Houston’s Energy Corridor. Originally built by Jenard Gross, one of Houston’s long-term prestigious builders, current ownership has renovated one third of the units and are achieving $150+ or more premium verses nonrenovated units providing new ownership the opportunity to renovate the remaining two-thirds of the units. Located on Dairy Ashford Road just south of the exclusive Memorial suburban neighborhoods and minutes from both CityCentre and Memorial City Mall, the surrounding areas offer a blend of high-end shopping, unique dining, forested parks and includes direct access to Terry Hershey Park, a 500-acre park with over ten miles of hike and bike trails.