Record High Apartment Deliveries Drives Houston Multifamily

Houston’s multifamily real estate sector showed tenacity amid a backdrop of high-profile foreclosures and economic fluctuations.

Apartment sales topped $611 million year-to-date, with Greystar and embattled firm Applesway Investment Group among the top five buyers in the market, according to Berkadia. Meanwhile, local firms like the Finger Companies and Hines are among the region’s top sellers.

Top buyer Applesway has been at the center of a mess of distress in recent months. In April, Arbor Realty Trust foreclosed on the Irving-based firm’s $229 million portfolio, including four properties in Houston. Less than two months later, a note of foreclosure was filed on a southeast Houston complex citing default on a $65 million loan. Meanwhile, a group of 123 investors filed a lawsuit alleging Applesway mismanaged over $12 million in investor funds to finance an unrelated multifamily project in Houston.

Even under those cloudy skies, multifamily deliveries hit a 10-year high in Greater Houston, according to Berkadia. About 52,600 units went on the market in the first six months of the year or are under construction.

Rosenberg and Richmond lead this inventory expansion with over 5,000 units under construction or in pre-leasing. That’s up 13.5 percent year-over-year. Those southwest townships narrowly beat out Katy, which outperformed the rest of the metro in construction, with about 2,000 units underway.

Fluctuations in Houston’s multifamily market remain largely concentrated. The city has turned the beat around on net absorption in 2023, which totaled 12,000 units compared to a net absorption of -5,000 units just last year. The report estimates an additional 6,900 net units are projected to be absorbed by the end of this year.

The Space City has maintained its reputation as a cost-effective option in the realm of major metropolitan markets. While it did see a slight annual rental growth, the average monthly effective rent stood at $1,360 in the second quarter of 2023, undercutting Texas’ other major metros. However, July commonly logs an uptick in rent growth, so trends are likely to continue increasing.

Areas marked by population growth such as Katy, Cypress and the Woodlands contain some of the metro’s highest rents with steady growth as a trend of newer builds places supply-side pressure on the market when compared to submarkets with an aged inventory.

However, submarkets with more Class B and C inventory, such as Alief and East Inner Loop, still saw above-average rent growth of up to 16 percent, irrespective of occupancy rates and demand.