An abundance of new apartment supply, combined with a contraction in the energy sector, made 2016 a challenging year for Houston’s apartment market. But experts at Berkadia, backed by Berkadia’s 2017 Market Forecast, see reasons for optimism in the year ahead, as supply and demand come closer into balance. 

“2017 will be an opportunity for the Houston’s apartment market to catch its breath, so to speak, putting the market on solid footing for future growth,” said Ryan Epstein, Senior Managing Director, Investment Sales, in Berkadia’s Houston office. “Houston’s diversified, international economy is primed for growth, and we believe the stability will be felt by late 2017 based on increasing demand and a decrease in the number of new units delivered.”

Epstein points to the smaller pipeline in 2017: only 16,740 new apartment units, the majority of which will come online in the first half of the year, according to the Berkadia report. That is substantially lower than the 21,310 delivered in 2016, which marked a 20-year high.

An uptick in demand resulting from job growth is also expected, added Tucker Knight, Senior Managing Director, Debt & Equity, in Berkadia’s Houston office. “We’re finally starting to see momentum in the oil and gas sector,” said Knight. “Rig count is up 58% year over year, and companies are expanding their workforce for the first time in 24 months.”

On the lending environment, he added, “We had a robust year placing capital in Houston despite the current economic conditions. While banks and life companies have pulled back, the agencies – Fannie Mae and Freddie Mac – have remained active in the Houston MSA and will continue to do so in select submarkets.” 

Other highlights of the Houston 2017 Market Forecast:

• Total non-farm employment is forecast to expand by 0.4% by year’s end, with the local economy adding approximately 13,100 new jobs
• Modest job growth is expected to push leasing activity higher than last year, with 13,500 apartments absorbed in 2017, versus 11,620 units in 2016.
• Deliveries (16,740) are expected to exceed leasing activity (13,500) in 2017, pushing vacancy up by about 30 basis points, from 7.5% to 7.8%.
• Average asking rent will advance 1.9% in 2017, rising from $1101 to $1122.

About Berkadia® :

Berkadia, a joint venture of Berkshire Hathaway and Leucadia National Corporation, is a leader in the commercial real estate industry, offering a robust suite of services to our multifamily and commercial property clients. Through our integrated mortgage banking, investment sales and servicing platform, Berkadia delivers comprehensive real estate solutions for the entire life cycle of our clients’ assets.

To learn more about Berkadia, please visit www.berkadia.com.