O’Connor & Associates Apartment Forecast

Posted on by ginger

February 24

Speakers:

  • Matthew Phillips, National Apartment Advisors;
  • Ed Nwokedi, Cushman and Wakefield

Key Takeaways:

  • Houston area population will continue to grow steadily, reaching 8.33 million by 2025 according to Greater Houston Partnership-we are currently 5th largest Metro area in the U.S.
  • Medical, petro-chemical, hospitality & leisure, and other industries are strong, and many local submarkets have their own economic drivers
  • Most of the current multi-family (M-F) projects are Class A or “luxury A+” and are between the CBD and the Post Oak Galleria area-about 50% of the new supply
  • Many of them are podium mid- to high-rise and some have a retail component, all necessary due to high land costs; ability to live in them and walk to restaurants and other attractions create an exciting new life-style for Houstonians and people are ready to spend more to ‘move up’
  • For those who invested in M-F in 2008-09 there have been big profits; Class C values for example have doubled in ten years
  • Concessions are coming in new Class A product but they should still lease up in two years, a slower rate than expected; some developers will encounter investor and lender pressure due to slower than projected lease-up
  • Lenders are a little more hesitant now for Houston projects but they have a strong long-term opinion of our market
  • Lots of international investment money coming to Houston M-F and other commercial real estate, especially from China and South America
  • Occupancies may drift down from 92% to mid-to high 80s but this is not too unusual after a busy development cycle
  • Construction boom has not been just in Class A but in “Luxury Class A+”, something new for our market; however, these units are ‘chasing’ a shrinking demographic to some extent due to oil industry layoffs, so the absorption rate is slowing
  • Post Oak/River Oaks/Midtown projects have the highest rents: $2.70 SF, with CBD demanding $2.30 SF: all record high rents
  • Financing for today’s projects was based on yesterday’s projections, therefore some equity investors are getting antsy to get their capital returned
  • There will be some good deals in Houston in coming months / years for buyers of M-F projects; current crunch will create buying opportunities