Houston's multifamily market is expected to remain strong this year after a strong performance in 2023.
According to Berkadia, developers are expected to deliver 21,500 apartments to the market this year.
This is the highest number of deliveries in a single year since 2017. Due to increased deliveries, multifamily occupancy is projected to fall to 92 percent in 2024, down 50 basis points from the previous year.
“2023 was a positive year for multifamily housing in Houston overall, in part because Houston was one of the few, or only, major cities with positive rental growth through 2023. “Because of this,” Managing Director Joey Rippel said. percentage of investment sales from Berkadia's Houston office. “Rental growth ended the year at about 1%, which outpaced many markets.”
Effective rents in half of major cities fell last year, according to Avison Young. This interest rate is expected to rise by more than 2% in 2024, and the fourth quarter interest rate could reach almost $1,400.
The strength of Houston's multifamily market is fueled by expectations for population growth in the region. Bercadia estimates that Houston's population could grow by 1.4% in 2024, adding 54,000 new residents.
The absorption rate was negative at nearly 9,000 units in 2022, following a slump in the construction pipeline and a rebound last year as other regions of the country reeled from sluggish growth. While the multifamily construction pipeline nationally fell by 53%, Houston bucked that trend and saw deliveries increase by 40% between 2022 and 2023.
But the suffering continues.
More than a third of Houston's apartment complexes will be designated as “critical” by 2024, Trepp said. Houston had the highest rate of criticism of loans among the nation's 10 metropolitan areas. Rippel believes the report is largely exaggerated and remains optimistic about Houston's multifamily market.
“Despite all the headlines about the Houston market, I would say we are in the same position as every major city across the country. Everyone is feeling the pain of rising interest rates,” Rippel said. “One thing Houston hasn't experienced in other major cities is insurance increases. Some customers have seen their premiums go up more than 150 percent, which puts a huge strain on cash flow and has been criticized. This is a contributing factor to the financing.”
