ED CUMMINS Senior Vice President 713.272.1288 | direct [email protected]TRANSWESTERN HOUSTON MULTIFAMILY GROUP 1900 West Loop South, Suite 1300 Houston, Texas 77027 713.270.7700 | telephone 713.271.8172 | facsimile transwestern.net Q1.2011 Houston TRANSWESTERN The Apartment Report RENTAL RATES Houston’s 53 apartment submarkets maintained Q4 2010’s average per SF market rents of $0.89 in the first quarter. Although rents declined slightly toward the end of 2010, the monthly rent increases throughout the year, specifically near the end of Q2 2010 at the peak leasing season, were able to absorb the impact and stabilize the annual performance. Although concessions are down from a year ago, rent discounts are still widely used by Houston area apartments. The most recent survey reveals that 49% of properties reported some sort of discount with an average rent concession of 10%. The drop in concessions and strong demand resulted in an effective rental rate increase of 1.4% in Q1 2011. Houston’s core Inner Loop submarkets including the Galleria were able to implement higher rents which include Bellaire/West University, Greenway Plaza and Inner Loop West. The fact that rent levels remained steady throughout 2010 and in the midst of the economic recession is further evidence that the Houston market weathered very well and is primed for occupancy and rent growth. Outlook: Effective rental rates are forecasted to rise as concessions decline and new supply subsides. CLINT DUNCAN Senior Associate 713.270.3316 | direct [email protected]LUPE OLIVARES Senior Analyst 713.272.1290 | direct [email protected]HISTORICAL APARTMENT RENTS/UNIT - QUARTERLY HISTORICAL APARTMENT RENTS/SF - QUARTERLY Q1.2011 SNAPSHOT RENTS OCCUPANCY ABSORPTION SALES DEVELOPMENT Market rents show stability throughout 2010 and in Q1 2011. Effective rents rise 1.4% in the first three months of the year. A 2.0% increase from Q1 2010 results in an average occupancy of 87.5% for Houston area apartments. 3,510 units absorbed in the first quarter, apartment demand should increase during the year with job growth and limited new supply. Although down from 4Q 2010, apartment sales maintained a healthy pace with 21 properties trading. Development activity remains low. A total of 4,339 units are currently under construction and/or in lease-up. $631 $653 $670 $687 $702 $713 $731 $756 $765 $768 $- $100 $200 $300 $400 $500 $600 $700 $800 $900 1Q 2002 1Q 2003 1Q 2004 1Q 2005 1Q 2006 1Q 2007 1Q 2008 1Q 2009 1Q 2010 1Q 2011 $0.75 $0.77 $0.79 $0.80 $0.82 $0.84 $0.86 $0.88 $0.89 $0.89 $0.65 $0.70 $0.75 $0.80 $0.85 $0.90 1Q 2002 1Q 2003 1Q 2004 1Q 2005 1Q 2006 1Q 2007 1Q 2008 1Q 2009 1Q 2010 1Q 2011 We hope you find this report both useful and insightful. Please feel free to contact us if we can assist with your property valuation, rent or sales comparables analysis or any current market trends and information. We look forward to working with you in the near future.
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TRANSWESTERNHOUSTON MULTIFAMILY GROUP1900 West Loop South, Suite 1300Houston, Texas 77027713.270.7700 | telephone713.271.8172 | facsimiletranswestern.net
Q1.2011Houston
TRANSWESTERN
TheApartmentReport
RENTAL RATES
Houston’s 53 apartment submarkets maintained Q4 2010’s average per SF market rents of $0.89 in the first quarter. Although rents declined slightly toward the end of 2010, the monthly rent increases throughout the year, specifically near the end of Q2 2010 at the peak leasing season, were able to absorb the impact and stabilize the annual performance. Although concessions are down from a year ago, rent discounts are still widely used by Houston area apartments. The most recent survey reveals that 49% of properties reported some sort of discount with an average rent concession of 10%. The drop in concessions and strong demand resulted in an effective rental rate increase of 1.4% in Q1 2011. Houston’s core Inner Loop submarkets including the Galleria were able to implement higher rents which include Bellaire/West University, Greenway Plaza and Inner Loop West. The fact that rent levels remained steady throughout 2010 and in the midst of the economic recession is further evidence that the Houston market weathered very well and is primed for occupancy and rent growth.
Outlook: Effective rental rates are forecasted to rise as concessions decline and new supply subsides.
We hope you find this report both useful and insightful. Please feel free to contact us if we can assist with your property valuation, rent or sales comparables analysis or any current market trends and information.
We look forward to working with you in the near future.
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Q1.2011Houston
The Apartment Report
THE APARTMENT REPORT • HOUSTON • Q1.2011
OCCUPANCY
Apartment communities in Houston posted an average occupancy of 87.5% in the first quarter which represents a 2.0% increase from Q1 2010. Class “A” properties led the pack with an average occupancy of 92.6% followed by class “B” properties averaging 87.5%. The city’s top occupied submarkets were Inner Loop West (95.5%), Heights (94.3%), Hwy 288/Almeda (93.8%), Museum District (93.7%) and Montrose/Memorial Heights (93.7%).
Outlook: Occupancy is expected to increase approximately 2 to 3 percent during the next twelve months.
ABSORPTION
Houston’s first quarter 2011 absorption continues the positive trend exhibited in 2010. The annual absorption last year reached 13,076 units, which is the first time since 2005 that Houston’s apartment market has absorbed over 10,000 units and is a reliable indicator of the city’s recovery. Jobs fuel absorption and Houston recently ranked 2nd in the nation in job growth with an increase of 51,800 jobs (Mar. ’10 - Mar. ’11), according to a report recently issued by the U.S. Bureau of Labor Statistics. First quarter absorption in 2011 yielded 3,510 units, mirroring the strong results registered in the first quarter of 2010 (3,694 units). Class “A” properties recorded the largest share of the quarterly absorption, 48% or 1,689 units. The remainder consisted of class “B” communities at 21% (725 units) and class “C” assets at 23% (810 units).
Outlook: Houston apartment demand will benefit from a diminished development pipeline and solid job growth.
APARTMENT SALESThe beginning of 2011 witnessed a healthy amount of sales activity. 21 apartment transactions occurred in the first quarter. The property trades represented all asset classes as well as stabilized and distressed sales.
Outlook: Local apartment listings have risen considerably from last year, of which many are currently under contract and are expected to close in the second and third quarters. High investor interest and a growing supply of offerings will keep sales brisk.
Property Submarket Class Units Built Sale Date
Concord at Allendale Gulf Freeway B 264 2002 Jan-11
Fairfield Cove Champions - East B 135 1983 Jan-11
Alden Landing Woodlands A 292 1999 Jan-11
Lake Wyndemere Woodlands A 320 2001 Jan-11
Village Square Woodlands B 271 1980 Jan-11
Mediterra at Westchase Westchase B 312 1981 Jan-11
Green Tree Place Bear Creek/Copperfield B 189 1975 Jan-11
Somerset Place Brookhollow C 190 1985 Jan-11
Broadstone Memorial Far West A 401 2008 Jan-11
Broadwater Deer Park A 248 2004 Jan-11
Coral Gables Alief C 326 2003 Feb-11
Camden Heights (fka Midtown Heights) Heights A 352 2004 Feb-11
Pathway, The Westchase B 142 1979 Feb-11
Stonebrook II Baytown A 192 2003 Feb-11
El Paraiso Sharpstown/Westwood C 372 1980 Feb-11
Casa Palmas (fka Grayson Falls) Pasadena C 308 1969 Feb-11
Royal Pines Braeswood C 810 1977 Feb-11
Copper Creek Champions - West B 300 1982 Mar-11
Madison at Bear Creek, The Bear Creek/Copperfield B 180 1982 Mar-11
Chalfonte Far West B 86 1983 Mar-11
Carrington Court Galleria B 119 1966 Mar-11
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Q1.2011Houston
The Apartment Report
THE APARTMENT REPORT • HOUSTON • Q1.2011
Currently Under Construction/Lease Up
CONSTRUCTION
Apartment development began tapering off last year with a sum of only 10,924 units built, a considerable drop from the 2009 total of 17,614 units. Currently, 4,339 units are under construction and/or in lease up. A majority of these developments are affordable housing. The Brazosport (southeast Houston) and Katy (west Houston) areas are leading the activity with three projects underway in each submarket. Houston’s Inner Loop/Galleria submarkets, a major hub of development during the past five years, have cooled off with only one property currently under construction (321 units).
Proposed construction is estimated to be in the range of 5,000 to 11,600 units. The Inner Loop and Katy submarkets have the highest concentration of proposed units.
Outlook: Delivery of new units will be minimal for the next 12 to 18 months. New supply will accelerate in the second half of 2012.
The information in this report is the result of a compilation of information on the Houston MSA multifamily market. Transwestern obtained the information from a variety of primary and secondary sources, including O’Connor & Associates and M-PF Research.