Demand strengthens for Houston apartments

Luxury apartment high-rise under construction on Fannin in Midtown Houston, Sunday, Jan. 6, 2019.

Demand shot up for Houston-area apartments in the second quarter, a much-needed boost going into the summer rental season and a sign of hope to landlords eager to raise rents.

After two sluggish quarters, renters occupied nearly 7,000 more units from April to June, according to a study from Richardson-based RealPage, a real estate data firm. Only two other markets logged stronger demand: Dallas/Ft. Worth and Chicago.

“The expectation is that it’ll get better as we go,” said Adam Couch, an analyst with RealPage.

Strong job growth, high home prices and a rising number of Houstonians preferring to rent are fueling the demand.

“The millennial generation wants to be renters longer than the generation before them…so home ownership nationally has fallen,” said Greg Austin, a managing director with commercial real estate firm JLL. “It’s keeping apartment development propped up pretty well because they’re renters longer than they used to be.”

In the first half of the year, renters occupied an additional 10,000 units in the Houston metro, exceeding the number of units taken off the market during all of 2018, JLL said in a midyear report.

Austin said demand has been strongest inside the 610 Loop and in Katy, where there are several thousand apartment units under construction. Renters, he said, are drawn to the area because of its strong public schools and growing job market.

“With the population growth out there, you’ve got a lot of new retail. You’ve got some huge subdivisions. It’s just the natural population growth that goes west out through the Energy Corridor. Businesses locate out there to take advantage of all the population growth,” Austin said.

Despite the demand, the rate of increase in rents has remained essentially flat, in part because the Houston market is coming off a recent supply peak.

To lure tenants, Couch said, nearly one in three units in the Houston area offers some type of concession or discount.

“Over the past few quarters, we’ve seen annual rent change really struggle to remain positive, as well as occupancy trailing the national average,” Couch said.

Leasing activity during the second quarter brought multifamily occupancy to 93.4 percent, according to RealPage data. Though that’s above the previous two quarters, but below the year-ago figure of 93.8 percent.

Houston remains far more affordable than other large cities. In San Francisco, for example, the median two-bedroom apartment rent is $3,100, more than three times that of Houston, according to San Francisco-based Apartment List. The median rent for a two-bedroom apartment here is $1,030, compared with the national average of $1,190.

nancy.sarnoff@chron.com

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