houston multifamily report 2q 2018 - texas a&m university · houston multifamily report first...

a Berkshire Hathaway and Jefferies Financial Group company

SECOND QUARTER 2018

MARKET AT A GLANCE

OCCUPANCY AND RENT TRENDS

HOUSTONMULTIFAMILY REPORT

RISE IN EMPLOYMENT, APARTMENT OCCUPANCY BOOST RENT GROWTH

With a slowdown in apartment deliveries during the last year as part of the recovery from Hurricane Harvey, the average occupancy rate elevated amid sustained rental demand in the Houston metropolitan area. After apartment inventory grew 2.8% annually since mid-2016, inventory expanded 0.9% in the last four quarters. Apartment inventory growth was highest in the Downtown submarket, expanding 9.3% annually to 5,952 total units by the second quarter of 2018. Even with the rise in inventory around the metro’s central business district, leasing activity exceeded deliveries as Downtown occupancy reached 78.5% in June 2018, up from 63.2% one year prior. Helping drive demand in the area was United Airlines Inc. moving 1,400 employees into its new downtown Houston office during the first quarter of 2018. The submarket trend was reflected in the metro as Greater Houston average occupancy elevated 100 basis points year over year to 89.9% in mid-2018. With occupancy rising, apartment operators increased rent 5.0% during the last year to $1,031 in June 2018. In the Downtown submarket, rent increased 0.6% annually to stay a metro-high $2,031 by the end of the second quarter.

$700

$800

$900

$1,000

$1,100

85%

87%

89%

91%

93%

3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18


Occupancy Rate Effective Rent

OCCUPANCYRATE

EFFECTIVERENT

TOTAL INVENTORY

89.9%

$1,031

643,906

Up 100 bps since 2Q17

Up 5.0% since 2Q17

BERKADIASECOND QUARTER 2018

DELIVERIES AND DEMAND

ECONOMIC TRENDS


DELIVERIES

NETABSORPTION

3,836

7,107

Units YTD

Units YTD 0

5,000

10,000

15,000

20,000

25,000

2013 2014 2015 2016 2017 2018*


Deliveries Demand*Year to date

UNEMPLOYMENT*2017 2018

EMPLOYMENT*2017 2018

EXISTING SFH SALES**2017 2018

MEDIAN SFH PRICE**2017 2018

10-YEAR TREASURY**2017 2018

5.0%

3.02m

91.6k

$230.2k

2.19%

4.6%

3.10m

102.6k

$237.8k

2.91%

Houston employers accelerated hiring in the last year, which underpinned sustained rental demand. Total nonfarm employment expanded 2.9%, or by 86,300 net jobs, annually through May 2018, up from 1.0% expansion during the year prior. The latest local growth exceeded the 1.6% U.S. average increase since May 2017. Job creation in the professional and business services sector contributed to the rise in Greater Houston labor force. Employers added a metro-leading 34,900 net jobs for 7.3% growth during the last year. Hiring was also robust in the metro’s largest employment sector—trade, transportation, and utilities—as elevated oil prices helped the Houston economy recover. The sector expanded 2.4% with 15,100 workers added to payrolls. Part of the additions came with the expanding presence of DHL in the metro. During the third quarter of 2017, the global logistics company signed a three-year lease for a 128,924-square-foot distribution facility in north Houston. DHL will grow its footprint further when the 222,000-square-foot facility near the Port of Houston.

-40 BPSCHANGE

2.9%CHANGE

12.0%CHANGE

3.3%CHANGE

70 BPSCHANGE

U.S. SHARE OF WALLET METRO SHARE OF WALLET

U.S.ANNUAL RENT

26.5%share of wallet

METROANNUAL RENT


*May; **June

BERKADIA SECOND QUARTER 2018

© 2018 Berkadia Real Estate Advisors LLCBerkadia® is a registered trademark of Berkadia Proprietary Holding LLCDocument sources: Axiometrics; Berkadia Research; Federal Reserve Bank of St. Louis; Moody’s

SUBMARKET BREAKDOWN


SUBMARKET NAME# OF

COMMUNITIES # OF UNITS SIZE (SF)PRICE

($ / MO.)RENTAL RATE($ / SF / MO.) OCCUPANCY

Montrose/Museum/Midtown 53 13,191 924 $1,693 $1.83 88.7%

Highland Village/Upper Kirby/West U 63 16,617 969 $1,762 $1.82 91.4%

Med Center/Braes Bayou 80 23,734 881 $1,310 $1.49 87.5%

Heights/Washington Ave 48 10,937 887 $1,554 $1.75 88.7%

Downtown 23 5,952 968 $2,031 $2.10 78.5%

I-10 East/Woodforest/Channelview 58 11,735 834 $871 $1.04 85.0%

I-69 North 27 3,605 851 $793 $0.93 92.7%

Northline 48 6,405 838 $771 $0.92 93.4%

Greenspoint/Northborough/Aldine 66 17,181 794 $724 $0.91 88.1%

FM 1960 East/IAH Airport 46 8,778 897 $884 $0.99 94.0%

Lake Houston/Kingwood 49 12,674 940 $1,127 $1.20 84.9%

Northeast Houston/Crosby 21 3,278 884 $809 $0.92 82.3%

Brookhollow/Northwest Crossing 90 19,711 826 $836 $1.01 92.1%

Memorial/Spring Branch 109 21,846 916 $964 $1.05 92.2%

Inwood/Hwy 249 31 5,828 882 $794 $0.90 94.8%

Willowbrook/Champions/Ella 158 39,093 884 $920 $1.04 91.1%

Jersey Village/Cypress 62 15,281 907 $1,012 $1.12 93.1%

Bear Creek/Copperfield/Fairfield 61 16,461 902 $1,050 $1.16 92.6%

Katy/Cinco Ranch/Waterside 90 24,782 953 $1,180 $1.24 88.0%

Tomball/Spring 56 13,251 927 $1,142 $1.23 87.3%

Woodlands/Conroe South 68 19,702 942 $1,198 $1.27 90.7%

Conroe North/Montgomery 47 8,649 896 $918 $1.03 90.9%

Hwy 288 South/Pearland West 46 11,844 967 $1,146 $1.19 87.1%

U of H/I-45 South 108 17,794 798 $743 $0.93 90.6%

Beltway 8 /I-45 South 47 13,204 861 $882 $1.02 90.7%

Pasadena/Deer Park/La Porte 120 23,205 849 $849 $1.00 91.0%

Friendswood/Pearland East 28 5,458 856 $992 $1.16 93.6%

Clear Lake/Webster/League City 96 24,288 885 $1,091 $1.23 90.9%

Baytown 55 10,196 855 $871 $1.02 88.2%

Dickinson/Galveston 72 11,186 839 $904 $1.08 92.0%

Alvin/Angleton/Lake Jackson 66 10,525 825 $882 $1.07 86.7%

Galleria/Uptown 102 24,148 897 $1,288 $1.44 89.3%

Woodlake/Westheimer 37 12,233 889 $1,017 $1.14 92.1%

Energy Corridor/CityCentre/Briar Forest 105 32,659 946 $1,161 $1.23 84.6%

Westchase 50 14,922 840 $987 $1.18 91.6%

Alief 109 26,897 872 $875 $1.00 92.1%

Sharpstown/Westwood 106 25,538 790 $716 $0.91 92.6%

Westpark/Bissonnet 57 16,900 810 $751 $0.93 91.4%

Braeswood/Fondren SW 82 21,786 838 $781 $0.93 88.0%

Almeda/South Main 26 4,770 843 $842 $1.00 89.3%

Sugar Land/Stafford/Sienna 51 12,896 957 $1,208 $1.26 91.3%

Richmond/Rosenberg 29 4,766 875 $987 $1.13 94.0%

TOTALS 2,746 643,906 882 $1,031 $1.17 89.9%

CORPORATE HEADQUARTERS521 Fifth Avenue

20th FloorNew York, NY 10175

(646) 600-7800 | Fax: (646) 600-7838www.Berkadia.com

© 2018 Berkadia Proprietary Holding LLC Berkadia® is a trademark of Berkadia Proprietary Holding LLC.Axiometrics® is a trademark of Axiometrics Inc.Commercial mortgage loan origination and servicing businesses are conducted exclusively by Berkadia Commercial Mortgage LLC and Berkadia Commercial Mortgage Inc. This website is not intended to solicit commercial mortgage loan brokerage business in Nevada. Investment sales and real estate brokerage businesses are conducted exclusively by Berkadia Real Estate Advisors LLC and Berkadia Real Estate Advisors Inc. For state licensing details for the above entities, visit: www.berkadia.com/legal/licensing.aspx

a Berkshire Hathaway and Jefferies Financial Group company

MARKET AT A GLANCE


a Berkshire Hathaway and Leucadia National company

HOUSTONMULTIFAMILY REPORT FIRST QUARTER 2018

APARTMENT OCCUPANCY, RENT SOAR AS HIRING ACCELERATES

Houston’s recovery from Hurricane Harvey underpinned improved apartment fundamentals over the last year. Apartment absorption outpaced deliveries by a more than two-to-one ratio to elevate occupancy 30 basis points from December 2017 to 89.7% in March 2018. The latest quarterly trend was part of a 140-basis-point annual rise in occupancy, even as 7,547 units came online across Greater Houston since March 2017. Occupancy was highest in the FM 1960 East/IAH Airport submarket at 95.0% in the first quarter of 2018, up 160 basis points year over year as no new inventory came online in the area. Occupancy is expected to remain elevated this year as no new properties were under construction in the FM 1960 East/IAH Airport submarket during the first quarter of 2018. With rising occupancy over the last four quarters, operators advanced rent on average 3.0% in the submarket to $864 per month in March 2018. Metrowide, average rent was $1,022 per month in the first quarter of this year, increasing 4.6% from first quarter of 2017. Rent advanced a metro-leading 9.5% annually to $1,738 per month in March 2018 in the Highland Village/Upper Kirby/West U submarket as occupancy increased to 91.2% while 382 units came online.

$700

$800

$900

$1,000

$1,100

$1,200

87%

88%

89%

90%

91%

92%

2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17


Occupancy Rate Effective rent

OCCUPANCYRATE

EFFECTIVERENT

TOTAL INVENTORY

89.7%

$1,022

642,037

Up 140 bps since 1Q17

Up 4.6% since 1Q17


ECONOMIC TRENDS

BERKADIA


DELIVERIES

NETABSORPTION

1,242

2,971

Units YTD

Units YTD 0

5,000

10,000

15,000

20,000

25,000

2013 2014 2015 2016 2017 2018*




EMPLOYMENT**2017 2018

EXISTING SFH SALES***2017 2018

MEDIAN SFH PRICE***2017 2018

10-YEAR TREASURY***2017 2018

5.7%

3.00m

96.0k

$227.7k

2.40%

4.7%

3.07m

90.7k

$238.8k

2.74%

Houston employers accelerated hiring, which supported apartment demand. Total nonfarm employment expanded 2.2% annually through February 2018, up from 0.1% growth during the year before. With the upswing, the latest local growth outpaced the 1.5% average national rise since February 2017. Job creation in the professional and business services sector contributed to the expanding payrolls in Greater Houston. Professional and business services employers added 25,300 of the net 66,100 new jobs metrowide since February 2017. At the same time, the metro’s largest employment sector—trade, transportation, and utilities—expanded 2.0% with 12,300 new personnel. Part of the additions came with the new $135 million, 855,000-square-foot fulfillment center for Amazon.com Inc. in the Pinto Business Park that employed 2,500 workers. The sector will expand further when Amazon.com Inc. opens a 420,000-square-foot fulfillment center in Katy that will employ approximately 1,000 people when fully operational in the first half of 2018.

-100 BPSCHANGE

2.2%CHANGE

-5.5%CHANGE

4.9%CHANGE

30 BPSCHANGE


U.S.ANNUAL RENT


METROANNUAL RENT


FIRST QUARTER 2018

*January; **February; ***March

SUBMARKET BREAKDOWN

BERKADIA


FIRST QUARTER 2018

© 2018 Berkadia Real Estate Advisors LLCBerkadia® is a registered trademark of Berkadia Proprietary Holding LLCDocument sources: Apartment Data Services; Berkadia Research; Federal Reserve Bank of St. Louis; Moody’s

SUBMARKET NAME# OF



Montrose/Museum/Midtown 52 13,025 925 1,701 1.84 88.3%

Highland Village/Upper Kirby/West U 63 16,619 969 1,738 1.79 91.2%

Med Center/Braes Bayou 79 23,362 880 1,271 1.44 88.3%

Heights/Washington Ave 47 10,869 897 1,551 1.73 89.9%

Downtown 23 5,951 968 2,055 2.12 70.0%

I-10 East/Woodforest/Channelview 57 11,651 834 862 1.03 83.8%

I-69 North 27 3,605 851 792 0.93 94.3%

Northline 48 6,405 838 768 0.92 93.0%

Greenspoint/Northborough/Aldine 67 17,349 795 707 0.89 86.8%

FM 1960 East/IAH Airport 46 8,778 897 864 0.96 95.0%

Lake Houston/Kingwood 49 12,674 940 1,107 1.18 85.7%

Northeast Houston/Crosby 21 3,278 884 785 0.89 83.4%

Brookhollow/Northwest Crossing 90 19,711 826 833 1.01 91.8%

Memorial/Spring Branch 108 21,768 916 960 1.05 92.6%

Inwood/Hwy 249 31 5,828 882 782 0.89 94.6%

Willowbrook/Champions/Ella 158 39,093 884 915 1.04 91.0%

Jersey Village/Cypress 62 15,281 907 998 1.10 92.5%

Bear Creek/Copperfield/Fairfield 59 16,240 902 1,048 1.16 91.6%

Katy/Cinco Ranch/Waterside 90 24,753 954 1,177 1.23 86.9%

Tomball/Spring 55 12,959 926 1,123 1.21 87.2%

Woodlands/Conroe South 67 19,364 943 1,156 1.23 90.5%

Conroe North/Montgomery 47 8,649 896 907 1.01 88.1%

Hwy 288 South/Pearland West 46 11,844 967 1,149 1.19 86.4%

U of H/I-45 South 108 17,794 798 733 0.92 91.1%

Beltway 8 /I-45 South 47 13,204 861 865 1.01 90.9%

Pasadena/Deer Park/La Porte 120 23,205 849 838 0.99 91.1%

Friendswood/Pearland East 28 5,458 857 988 1.15 93.7%

Clear Lake/Webster/League City 95 24,030 885 1,068 1.21 91.8%

Baytown 55 10,196 854 864 1.01 86.1%

Dickinson/Galveston 74 11,330 840 895 1.07 90.2%

Alvin/Angleton/Lake Jackson 66 10,525 825 881 1.07 86.3%

Galleria/Uptown 103 24,333 896 1,296 1.45 89.2%

Woodlake/Westheimer 37 12,233 889 1,011 1.14 91.0%

Energy Corridor/CityCentre/Briar Forest 102 32,198 945 1,172 1.24 84.3%

Westchase 50 14,922 840 984 1.17 92.2%

Alief 110 26,897 872 861 0.99 92.3%

Sharpstown/Westwood 106 25,538 790 711 0.90 92.6%

Westpark/Bissonnet 57 16,900 810 753 0.93 91.6%

Braeswood/Fondren SW 82 21,786 838 775 0.93 87.8%

Almeda/South Main 26 4,770 843 848 1.01 89.7%

Sugar Land/Stafford/Sienna 51 12,896 957 1,206 1.26 90.0%

Richmond/Rosenberg 29 4,766 875 968 1.11 93.1%

TOTALS 2,738 642,037 882 1,022 1.16 89.7%




ALBUQUERQUE, NM

AMBLER, PA

ATLANTA, GA

AUSTIN, TX

BATON ROUGE, LA

BIRMINGHAM, AL

BOCA RATON, FL

BOSTON, MA

CAMAS, WA

CHARLESTON, SC

CHATTANOOGA, TN

CHICAGO, IL

CLEVELAND, OH

COLORADO SPRINGS, CO

DALLAS, TX

DC METRO

DENVER, CO

DETROIT, MI

EL SEGUNDO, CA

FRESNO, CA

HOUSTON, TX

IRVINE, CA

JACKSONVILLE, FL

KANSAS CITY, MO

LAS VEGAS, NV

LEXINGTON, KY

LOS ANGELES, CA

MARBLEHEAD, MA

MEMPHIS, TN

MIAMI, FL

MIDVALE, UT

MURRIETA, CA

NASHVILLE, TN

NEW YORK, NY

NEWPORT NEWS, VA

ORLANDO, FL

PASADENA, CA

PHILADELPHIA, PA

PHOENIX, AZ

PORTLAND, OR

RALEIGH, NC

RICHMOND, VA

SALT LAKE CITY, UT

SAN ANTONIO, TX

SAN DIEGO, CA

SAN FRANCISCO, CA

SEATTLE, WA

SHREWSBURY, NJ

ST. LOUIS, MO

TAMPA, FL

TEMPE, AZ

TUCSON, AZ

WOODLAND HILLS, CA

HYDERABAD - INDIA*

*Back Office Support



MARKET AT A GLANCE



HOUSTONMULTIFAMILY REPORT THIRD QUARTER 2017

POST-HURRICANE APARTMENT DEMAND FUELS RECENT RENT GROWTH

The aftereffects of Hurricane Harvey presented an unexpected climate within the local multifamily market late in the third quarter of 2017. Some multifamily developments under construction were stalled because of damage, restricted access, temporary loss of utilities, or lack of labor or materials for repairs. While a portion of multifamily owners and operators of existing properties dealt with damaged or uninhabitable properties, others took on new renters, many of which were displaced single-family households. For at least the near term, the lingering effects of Harvey’s damage will likely reverse the supply imbalance and anemic rent growth present in the metro area in the last few years. In just one month following Harvey, metrowide apartment occupancy rose 120 basis points to 90.1% in September. The heightened demand translated into a 1.4% monthly increase in effective rent to $999 per month in September. So far in 2017, construction completed on 11,298 units, although it is not currently known how many of these units were damaged in the storm. As of September, 39 apartment communities were under construction. These developments should bring 10,052 units online during the upcoming years.

$700

$800

$900

$1,000

$1,100

86%

88%

90%

92%

94%

4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17



OCCUPANCYRATE

EFFECTIVERENT

90.1%

$999

Up 120 bps since August 2017

Up 1.4% since August 2017


ECONOMIC TRENDS

BERKADIA


DELIVERIES

NETABSORPTION

11,298

8,239

Units YTD

Units YTD 0

5,000

10,000

15,000

20,000

25,000

2012 2013 2014 2015 2016 2017*








5.5%

2.99m

91.0k

$219.0k

1.63%

4.8%

3.05m

98.7k

$233.0k

2.20%

Underpinning the rise in apartment demand, Houston employers accelerated hiring. Total nonfarm employment expanded 1.8%, or by 54,800 jobs, annually through August 2017, up from a 0.1% contraction during the preceding year. The upswing pushed the local increase higher than the 1.4% national average growth since August 2016. Job creation in the professional and business services sector was a significant force for the positive shift in the Houston economy. Employers in one of the largest employment sectors added a metro-leading 15,400 net personnel year over year. Education and health services organizations nearly matched the job creation, with 14,300 additions since August 2016. Part of the additions came with the opening of the $168 million, 81-bed Memorial Hermann Cypress Hospital in March. Hiring was also robust in the manufacturing industry, with 12,900 workers added for a 5.9% expansion. With a majority of employment sectors posting gains, the unemployment rate was 4.8% in August 2017, down 70 basis points from one year prior.

-70 BPSCHANGE

1.8%CHANGE

8.5%CHANGE

6.4%CHANGE

60 BPSCHANGE


U.S.ANNUAL RENT


METROANNUAL RENT


THIRD QUARTER 2017

*August; **September

SUBMARKET BREAKDOWN

BERKADIA


THIRD QUARTER 2017

SUBMARKET NAME# OF







Downtown 23 5,951 967 1,960 2.03 62.3%


I-69 North 27 3,605 851 760 0.89 93.6%

Northline 47 6,294 840 754 0.90 91.8%







Inwood/Hwy 249 31 5,828 882 750 0.85 94.5%





Tomball/Spring 53 12,566 929 1,113 1.20 82.5%




U of H/I-45 South 105 17,257 797 711 0.89 88.4%

Beltway 8 /I-45 South 47 13,204 861 861 1.00 89.6%




Baytown 53 9,678 852 851 1.00 88.6%



Galleria/Uptown 102 24,306 896 1,270 1.42 86.1%



Westchase 50 14,922 840 951 1.13 88.7%

Alief 110 26,897 872 837 0.96 91.4%







TOTALS 2,716 636,699 882 999 1.13 88.3%

© 2017 Berkadia Real Estate Advisors LLCBerkadia® is a registered trademark of Berkadia Proprietary Holding LLCDocument sources: Axiometrics; Moody’s; Berkadia Research; Apartment Data Services




ALBUQUERQUE, NM

AMBLER, PA

ATLANTA, GA

AUSTIN, TX

BAKERSFIELD, CA

BATON ROUGE, LA

BETHESDA, MD

BIRMINGHAM, AL

BOCA RATON, FL

BOSTON, MA

CAMAS, WA

CHARLESTON, SC

CHATTANOOGA, TN

CHICAGO, IL

CLEARWATER, FL

CLEVELAND, OH


DALLAS, TX

DENVER, CO

DETROIT, MI

EL SEGUNDO, CA

FRESNO, CA

HOUSTON, TX

IRVINE, CA

JACKSONVILLE, FL

KANSAS CITY, MO

LAS VEGAS, NV

LENOX, MA

LOS ANGELES, CA

MARBLEHEAD, MA

MIAMI, FL

MIDVALE, UT

MURRIETA, CA

NASHVILLE, TN

NEW YORK, NY

NEWPORT NEWS, VA

ORLANDO, FL

PASADENA, CA

PHILADELPHIA, PA

PHOENIX, AZ

PORTLAND, OR

RALEIGH, NC

RICHMOND, VA

SACRAMENTO, CA

SALT LAKE CITY, UT

SAN ANTONIO, TX

SAN DIEGO, CA

SAN FRANCISCO, CA

SCOTTSDALE, AZ

SEATTLE, WA

SHREWSBURY, NJ

ST. LOUIS, MO

TACOMA, WA

TAMPA, FL

TEMECULA, CA

TEMPE, AZ

TUCSON, AZ

WOODLAND HILLS, CA

HYDERABAD - INDIA*




MARKET AT A GLANCE



HOUSTONMULTIFAMILY REPORT SECOND QUARTER 2017

APARTMENT MARKET SHOWING SIGNS OF STABILIZATION IN 2017

Apartment demand surged in the Houston metropolitan area in the first half of 2017. Renters newly occupied 11,636 units during the first two quarters of the year across the metro, outpacing the 4,474 units absorbed in all of 2016. Builders worked to meet the heightened demand, bringing 9,620 units online since December across Greater Houston. The 463-unit Market Square Tower was the largest property to have units begin lease-up in that time, while the remaining units are scheduled to come online in the third quarter. With demand exceeding inventory growth, apartment occupancy elevated 50 basis points from December 2016 to 88.9% in June 2017. Occupancy was highest in the Inwood/Hwy 249 submarket at 95.3% during the second quarter. With no new inventory amid continued apartment demand, occupancy was up 150 basis points from the close of 2016. Boosted by the rise, Inwood/Hwy 249 effective rent advanced 1.8% since December to $752 per month in June. At the same time, metrowide effective rent advanced 1.6% to $982 per month in June 2017.

$700

$800

$900

$1,000

$1,100

84%

86%

88%

90%

92%

3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17



OCCUPANCYRATE

ASKINGRENT

88.9%

$982

Down 60 bps since 2Q16

Down 0.1% since 2Q16


ECONOMIC TRENDS

BERKADIA


DELIVERIES

NETABSORPTION

9,620

11,636

Units YTD

Units YTD 0

5,000

10,000

15,000

20,000

25,000

2012 2013 2014 2015 2016 2017*








5.2%

3.00m

91.3k

$208.0k

1.64%

5.5%

3.05m

90.1k

$232.3k

2.19%

Houston employers accelerated hiring in the last year, underpinning the rise in rental demand. Total nonfarm employment expanded 1.7% annually through May 2017, up from 0.2% growth during the preceding year. The local latest increase outpaced the 1.6% national annual rise since May 2016. Hiring in the public sector contributed to the rise in Houston payrolls. Government agencies added a metro-leading 12,700 positions to expand the sector 3.2% since May 2016, even amid a hiring freeze of state jobs in 2017. The professional and business services segment contributed an additional 12,500 jobs to the local economy for a 2.7% annual expansion. Hiring was also robust in the leisure and hospitality industry, where 12,300 positions were added since May 2016 for a 4.0% growth. Losses among the blue-collar sectors tamped down overall job growth with the construction industry shedding 4,900 positions to contract 2.2%. With mixed results among employment sectors, the unemployment rate was 5.5% in May 2017, up 30 basis points from one year prior.

30 BPSCHANGE

1.7%CHANGE

-1.3%CHANGE

11.7%CHANGE

60 BPSCHANGE


U.S.ANNUAL RENT


METROANNUAL RENT


SECOND QUARTER 2017

*May; **June

© 2017 Berkadia Real Estate Advisors LLCBerkadia® is a registered trademark of Berkadia Proprietary Holding LLCDocument sources: Axiometrics; Moody’s; Berkadia Research; Apartment Data Services

SUBMARKET BREAKDOWN

BERKADIA


SECOND QUARTER 2017

SUBMARKET NAME# OF







Downtown 21 5,448 978 2,018 2.06 63.2%


I-69 North 27 3,625 850 758 0.89 93.3%

Northline 47 6,290 840 734 0.87 93.4%







Inwood/Hwy 249 32 5,854 881 752 0.85 95.3%





Tomball/Spring 53 12,566 929 1,070 1.15 78.0%




U of H/I-45 South 105 17,199 797 714 0.90 89.6%

Beltway 8 /I-45 South 47 13,204 861 836 0.97 90.8%




Baytown 53 9,678 852 857 1.01 90.9%



Galleria/Uptown 102 24,200 896 1,218 1.36 85.4%



Westchase 50 14,922 840 935 1.11 87.9%

Alief 110 26,898 872 830 0.95 91.5%







TOTALS 2,719 636,927 882 982 1.11 88.9%

CORPORATE HEADQUARTERS 521 Fifth Avenue

20th Floor New York, NY 10175

(646) 600-7800 | Fax : (646) 600-7838www.Berkadia.com


ALBUQUERQUE, NM

AMBLER, PA

ATLANTA, GA

AUSTIN, TX

BAKERSFIELD, CA

BATON ROUGE, LA

BIRMINGHAM, AL

BOCA RATON, FL

BOSTON, MA

CAMAS, WA

CAPISTRANO BEACH, CA

CHARLESTON, SC

CHATTANOOGA, TN

CHICAGO, IL

CLEARWATER, FL


DALLAS, TX

DC METRO

DENVER, CO

DETROIT, MI

EL SEGUNDO, CA

FRESNO, CA

HOUSTON, TX

IRVINE, CA

JACKSONVILLE, FL

KANSAS CITY, MO

LAS VEGAS, NV

LEAWOOD, KS

LOS ANGELES, CA

MANCHESTER, MA

MARBLEHEAD, MA

MEMPHIS, TN

MIAMI, FL

MIDVALE, UT

NASHVILLE, TN

NEW YORK, NY

NEWPORT BEACH, CA

NEWPORT NEWS, VA

OKLAHOMA CITY, OK

ONTARIO, CA

ORLANDO, FL

PASADENA, CA

PHILADELPHIA, PA

PHOENIX, AZ

PORTLAND, OR

RALEIGH, NC

RICHMOND, VA

SACRAMENTO, CA

SALT LAKE CITY, UT

SAN ANTONIO, TX

SAN DIEGO, CA

SAN FRANCISCO, CA

SCOTTSDALE, AZ

SEATTLE, WA

SHREWSBURY, NJ

ST. LOUIS, MO

TACOMA, WA

TAMPA, FL

TEMECULA, CA

TEMPE, AZ

THE PLAINS, CA

TROY, MI

TUCSON, AZ

TULSA, OK

WAUKESHA, WA

WOODLAND HILLS, CA

HYDERABAD - INDIA*


MARKET AT A GLANCE



HOUSTONMULTIFAMILY REPORT FIRST QUARTER 2017

OCCUPANCYRATE

EFFECTIVERENT

88.3%

$976

APARTMENT SUPPLY, DEMAND REACHING EQUILIBRIUM TO START 2017

Apartment demand in the Houston metropolitan area surged to start 2017. Residents newly occupied a net 4,916 apartment units in the first three months of the year. The latest leasing activity exceeded the net 4,423 units absorbed in all of 2016. Rental demand was strongest in the affordable Westpark/Bissonnet submarket, where occupancy was a metro-high 94.3%. Across Greater Houston, occupancy was 88.3% in March 2017. The rate was the same level at the end of 2016 as leasing activity nearly kept pace with multifamily inventory growth. While occupancy held, operators advanced effective rent 0.9% in the first quarter to $976 per month in March. Also in the first three months of this year, builders brought 5,903 units online across the metro. While deliveries were spread out, the Montrose/Museum/Midtown submarket led additions. Three communities came online, expanding the submarket’s inventory by 859 units during the first quarter. Houston apartment market inventory will continue to grow in the near term, as construction was underway on 44 communities during the first quarter of 2017. Builders were scheduled to bring 10,631 units online by the end of next year.

$950

$960

$970

$980

$990

$1,000

84%

86%

88%

90%

92%

94%

Aug. 15 Oct. 15 Dec. 15 Feb. 16 Apr. 16 Jun. 16 Aug. 16 Oct. 16 Dec. 16 Feb. 17




Up 0.4% since 1Q16


ECONOMIC TRENDS

BERKADIA


DELIVERIES

NETABSORPTION

Units YTD

Units YTD






FIRST QUARTER 2017

*January; **March

5,903

4,9160

5,000

10,000

15,000

20,000

25,000

2012 2013 2014 2015 2016 2017*



4.9% 70 BPSCHANGE

5.6%

3.01m 0.1%CHANGE

3.01m

87.2k 6.3%CHANGE

92.7k

$213.9k 4.2%CHANGE

$222.9k

1.89% 60 BPSCHANGE

2.48%

Houston metropolitan nonfarm employment expanded 0.1% year over year with a net 2,700 new jobs through January 2017. Job growth nearly kept pace with the preceding year, when the local labor force grew 0.3%. The government sector buoyed Greater Houston employment, adding a metro-leading 11,900 jobs for 3.0% expansion since January 2016. Hiring was also robust in the education and health services, which recruited 10,100 personnel to increase 2.7%. At the same time, the leisure and hospitality industry grew by 9,900 net jobs, or 3.2%. Tamping down overall growth were losses in the blue-collar segment. The four employment sectors shed a combined 29,100 jobs annually through January 2017, with the greatest contraction of 9.3% in the natural resources and mining industry. With mixed results among the employment sectors, the Greater Houston unemployment rate was 5.6% in January 2017, up 70 basis points from one year prior. Even with the recent rise, the rate of jobless claims was only 20 basis points higher than the preceding five-year average.

U.S. SHARE OF WALLET

U.S.ANNUAL RENT


METRO SHARE OF WALLET

METROANNUAL RENT


© 2017 Berkadia Real Estate Advisors LLCBerkadia® is a registered trademark of Berkadia Proprietary Holding LLCDocument sources: Axiometrics; Moody’s; Berkadia Research

SUBMARKET BREAKDOWN

BERKADIA


FIRST QUARTER 2017

SUBMARKET NAME# OF



Montrose/ Museum/ Midtown 52 12,736 924 1,606 173.80 77.0%

Highland Village/ Upper Kirby/ West U 61 16,213 959 1,588 165.60 85.6%

Med Center/ Braes Bayou 77 22,813 879 1,231 140.00 86.5%

Heights/ Washington Ave 48 11,030 889 1,486 167.20 84.1%

Downtown 21 5,448 978 2,024 207.00 58.5%

I-10 East/ Woodforest/ Channelview 56 11,353 832 805 96.80 89.5%

I-69 North 27 3,646 849 743 87.50 91.8%

Northline 47 6,290 840 733 87.30 92.7%

Greenspoint/ Northborough/ Aldine 67 16,853 796 688 86.40 85.2%

FM 1960 East/ IAH Airport 45 8,681 898 837 93.20 94.0%

Lake Houston/ Kingwood 47 12,031 938 1,032 110.00 88.8%

Northeast Houston/ Crosby 21 3,278 886 761 85.90 93.1%

Brookhollow/ Northwest Crossing 89 19,593 826 799 96.70 90.8%

Memorial/ Spring Branch 108 21,714 915 913 99.80 91.4%

Inwood/ Hwy 249 32 5,854 881 747 84.80 94.2%

Willowbrook/ Champions/ Ella 158 39,013 885 870 98.30 89.7%

Jersey Village/ Cypress 61 15,131 908 952 104.80 92.8%

Bear Creek/ Copperfield/ Fairfield 59 16,216 903 998 110.50 86.8%

Katy/ Cinco Ranch/ Waterside 89 24,487 956 1,115 116.60 85.5%

Tomball/ Spring 52 12,426 930 1,060 114.00 74.0%

Woodlands/ Conroe South 65 18,815 943 1,092 115.80 87.5%

Conroe North/ Montgomery 44 8,032 894 872 97.50 85.1%

Hwy 288 South/ Pearland West 45 11,599 966 1,104 114.30 84.7%

U of H/ I-45 South 105 17,199 797 717 90.00 91.5%

Beltway 8 / I-45 South 46 13,004 857 832 97.10 91.7%

Pasadena/ Deer Park/ La Porte 118 22,839 847 793 93.60 90.8%

Friendswood/ Pearland East 28 5,458 857 960 112.00 94.0%

Clear Lake/ Webster/ League City 95 23,868 885 1,018 115.00 90.6%

Baytown 53 9,678 852 848 99.50 90.7%

Dickinson/ Galveston 74 11,330 840 844 100.50 89.7%

Alvin/ Angleton/ Lake Jackson 66 10,533 825 859 104.10 83.5%

Galleria/ Uptown 100 23,613 896 1,217 135.80 86.6%

Woodlake/ Westheimer 37 12,235 888 1,032 116.20 87.2%

Energy Corridor/ CityCentre/ Briar Forest 104 32,688 948 1,128 119.00 85.1%

Westchase 50 14,922 840 950 113.10 87.7%

Alief 110 26,894 873 826 94.60 91.4%

Sharpstown/ Westwood 106 25,538 790 690 87.30 91.0%

Westpark/ Bissonnet 57 16,900 810 735 90.70 94.3%

Braeswood/ Fondren SW 82 21,787 838 760 90.70 90.4%

Almeda/ South Main 24 4,422 846 837 98.90 88.9%

Sugar Land/ Stafford/ Sienna 48 12,217 956 1,150 120.30 91.9%

Richmond/ Rosenberg 29 4,766 875 940 107.40 91.9%

TOTALS 2,703 633,143 882 976 110.70 88.3%

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ALBUQUERQUE, NM

AMBLER, PA

ATLANTA, GA

AUSTIN, TX

BAKERSFIELD, CA

BATON ROUGE, LA

BIRMINGHAM, AL

BOCA RATON, FL

BOSTON, MA

CAMAS, WA

CHARLESTON, SC

CHATTANOOGA, TN

CHEVY CHASE, MD

CHICAGO, IL

CLEARWATER, FL

CLEVELAND, OH


DALLAS, TX

DENVER, CO

DETROIT, MI

EL SEGUNDO, CA

FRESNO, CA

HOUSTON, TX

IRVINE, CA

JACKSONVILLE, FL

KANSAS CITY, MO

LAS VEGAS, NV

LENOX, MA

LOS ANGELES, CA

MARBLEHEAD, MA

MIAMI, FL

MIDVALE, UT

MURRIETA, CA

NASHVILLE, TN

NEW YORK, NY

NEWPORT NEWS, VA

ORLANDO, FL

PASADENA, CA

PHILADELPHIA, PA

PHOENIX, AZ

PORTLAND, OR

RALEIGH, NC

RICHMOND, VA

SACRAMENTO, CA

SALT LAKE CITY, UT

SAN ANTONIO, TX

SAN DIEGO, CA

SAN FRANCISCO, CA

SCOTTSDALE, AZ

SEATTLE, WA

SHREWSBURY, NJ

ST. LOUIS, MO

TACOMA, WA

TAMPA, FL

TEMECULA, CA

TEMPE, AZ

TUCSON, AZ

WOODLAND HILLS, CA

HYDERABAD - INDIA*


MARKET AT A GLANCE



HOUSTONMULTIFAMILY REPORT THIRD QUARTER 2016

APARTMENT RENT RISES 1% AMID HEIGHTENED MULTIFAMILY DEVELOPMENT

Multifamily developers ramped up deliveries in the Houston metropolitan area during the last year. Since the third quarter of 2015, builders completed construction on over 20,000 multifamily units across Greater Houston. Deliveries were up from the more than 15,000 additions during the preceding year. Robust inventory growth will continue as construction was underway on 66 apartment communities in the third quarter, representing 17,572 additional units. Development was concentrated in the Central region of the metro, with nearly 7,000 units under construction in the Montrose/Museum/Midtown, the Highland Village/Upper Kirby/West U, the Med Center/Braes Bayou, the Heights/Washington Ave., and the Downtown submarkets. The influx of new inventory exceeded positive leasing activity in the last 12 months. The supply imbalance shifted occupancy down 180 basis points annually to 89.4% in the third quarter of this year. Even with the downswing in occupancy, healthy leasing activity supported operators advancing average effective rent 1% year over year to $981 per month in September of 2016. Effective rent remained highest in the Downtown submarket at $1,951 per month by the end of the third quarter, up 1.1% annually.

$900

$925

$950

$975

$1,000

88%

89%

90%

91%

92%

Feb. 15 Apr. 15 Jun. 15 Aug. 15 Oct. 15 Dec. 15 Feb. 16 Apr. 16 Jun. 16 Aug. 16



OCCUPANCYRATE

EFFECTIVERENT

89.4%

$981


Up 1.0% since 3Q15


ECONOMIC TRENDS

BERKADIA


DELIVERIES

NETABSORPTION

17,952

7,101

Units YTD

Units YTD 0

5,000

10,000

15,000

20,000

25,000

2011 2012 2013 2014 2015 2016*








4.6%

2.99m

93.6k

$214.0k

2.17%

5.4%

3.00m

91.6k

$220.5k

1.63%

Houston total nonfarm employment increased 0.4%, or by 12,100 jobs, year over year since August of 2015. The leisure and hospitality industry led the metro in gains, with 20,700 new personnel for 6.8% growth. Supporting the sector was the rise in visitors, with a record 17.5 million people traveling to Greater Houston in 2015. The leisure and hospitality industry should continue to see growth as developers add more than 8,000 hotel rooms and approximately $1.5 billion worth of improvements ahead of Super Bowl LI in February 2017. Beyond the leisure and hospitality sector, education and health services employers provided a boost to local payrolls with 14,800 new employees for a 4% increase. Part of the additions came when Texas Children’s Health Plan relocated its headquarters and expanded its staff by approximately 550 positions in the first half of 2016. While several employment sectors expanded, losses in the energy sector tamped down job growth a combined 24,300 jobs shed in the manufacturing and the natural resources and mining industries.

80 BPSCHANGE

0.4%CHANGE

-2.1%CHANGE

3.0%CHANGE

-50 BPSCHANGE


U.S.ANNUAL RENT


METROANNUAL RENT


THIRD QUARTER 2016

*August; **September

© 2016 Berkadia Real Estate Advisors LLCBerkadia® is a registered trademark of Berkadia Proprietary Holding LLCDocument sources: Axiometrics; Moody’s; Berkadia Research

SUBMARKET BREAKDOWN

BERKADIA


THIRD QUARTER 2016

SUBMARKET NAME# OF



Montrose/ Museum/ Midtown 49 11,901 931 1,680 180.5 80.7%

Highland Village/ Upper Kirby/ West U 60 15,759 961 1,659 172.6 86.9%

Med Center/ Braes Bayou 74 21,813 878 1,255 142.9 89.2%

Heights/ Washington Ave 48 11,030 889 1,552 174.6 80.4%

Downtown 18 4,581 976 1,951 199.9 58.4%

I-10 East/ Woodforest/ Channelview 56 11,353 832 788 94.7 91.0%

I-69 North 26 3,503 848 748 88.2 92.3%

Northline 47 6,290 840 725 86.3 92.7%

Greenspoint/ Northborough/ Aldine 67 16,694 797 688 86.3 87.2%

FM 1960 East/ IAH Airport 45 8,681 898 840 93.5 93.0%

Lake Houston/ Kingwood 47 12,031 938 1,065 113.5 88.5%

Northeast Houston/ Crosby 21 3,278 886 729 82.3 92.6%

Brookhollow/ Northwest Crossing 89 19,593 826 803 97.2 91.5%

Memorial/ Spring Branch 107 21,527 916 927 101.2 91.8%

Inwood/ Hwy 249 33 6,030 883 727 82.3 93.7%

Willowbrook/ Champions/ Ella 158 39,013 885 885 100 91.2%

Jersey Village/ Cypress 60 14,961 908 964 106.2 93.3%

Bear Creek/ Copperfield/ Fairfield 56 15,657 900 1,007 111.9 91.1%

Katy/ Cinco Ranch/ Waterside 86 23,688 958 1,126 117.5 84.9%

Tomball/ Spring 48 11,215 923 1,059 114.7 74.9%

Woodlands/ Conroe South 65 18,815 943 1,113 118 83.0%

Conroe North/ Montgomery 45 8,022 894 893 99.9 85.4%

Hwy 288 South/ Pearland West 43 11,062 966 1,097 113.6 88.1%

U of H/ I-45 South 105 17,264 797 712 89.3 91.4%

Beltway 8 / I-45 South 46 13,004 857 838 97.8 93.1%

Pasadena/ Deer Park/ La Porte 118 22,838 847 798 94.2 91.0%

Friendswood/ Pearland East 28 5,458 857 973 113.5 94.8%

Clear Lake/ Webster/ League City 93 23,345 884 1,024 115.8 92.8%

Baytown 53 9,678 852 858 100.7 91.8%

Dickinson/ Galveston 73 11,100 838 837 99.9 94.0%

Alvin/ Angleton/ Lake Jackson 64 10,027 825 852 103.3 87.7%

Galleria/ Uptown 98 22,983 892 1,238 138.8 89.4%

Woodlake/ Westheimer 36 11,848 888 1,018 114.6 87.6%

Energy Corridor/ CityCentre/ Briar Forest 102 31,848 950 1,125 118.4 84.8%

Westchase 49 14,653 838 943 112.5 90.3%

Alief 110 26,895 873 836 95.8 92.8%

Sharpstown/ Westwood 106 25,538 790 685 86.7 92.6%

Westpark/ Bissonnet 57 16,900 810 728 89.9 94.3%

Braeswood/ Fondren SW 83 21,907 839 752 89.6 90.6%

Almeda/ South Main 24 4,422 846 828 97.9 92.8%

Sugar Land/ Stafford/ Sienna 48 12,217 956 1,177 123.1 92.4%

Richmond/ Rosenberg 29 4,766 875 946 108.1 93.0%

TOTALS 2,670 623,188 881 981 111.4 89.4%

HOUSTONSECOND QUARTER 2016

VACANCY & RENT PERMITS & DELIVERIES EMPLOYMENT GROWTH

VACANCY & RENT COMPARISON

For a full list of Houston submarkets, visit apartmentupdate.com/report/2227

As the home to the world's largest concentration of research and health care institutions at the Texas Medical Center, the education andhealth services sector was a key economic driver that supported healthy rental demand during the last 12 months. The industry added ametro-leading 18,200 jobs, to expand 5%, since mid-2015. Overall, a net 10,400 personnel were added in that time across allemployment sectors as total nonfarm employment expanded 0.3%. The combined 42,600 jobs shed in the manufacturing, theprofessional and business services, and the trade, transportation and utilities sectors tamped down metrowide net gains.

The median existing single-family home price advanced 4.2% annually to $220,800 by the end of the second quarter of 2016. Also inthe last 12 months, existing single-family home sales accelerated 1.4% to 116,100 annualized transactions in June 2016.

Renters were attracted to the new apartment inventory, as the Bear Creek/Katy submarket led leasing activity so far this year. Overall,4,840 multifamily units were absorbed since December. Absorption was positive in 22 of the 28 submarkets.

Since the start of the year, builders completed construction on 7,360 apartments across the metro. Activity was focused in the BearCreek/Katy submarket, where 11.6% of the metro's deliveries came online. Additions were also robust in the Braeswood/Bellairesubmarket, accounting one out of every 10 new apartments.

Developers submitted permits for 8,350 multifamily units since the close of 2015. Recent issuance expanded the planning pipeline to 55multifamily communities, which could bring nearly 13,000 apartments to the market if all properties come online. Development wasfocused in the Montrose/River Oaks submarket where one-third of all the planned units were located.

Vacancy was 6.3% in the second quarter of 2016, matching the 2015 year-end rate. Overall, during the last 12 months, the influx ofnew inventory exceeded healthy absorption, resulting in vacancy rising 110 basis points. Even with the annual rise, the recent vacancyrate was 30 basis points lower than the five-year average of 6.6%.

At $1,105 per month in mid-2016, average asking rent advanced 0.9% since the close of last year. At the same time, effective rentincreased 0.1%, expanding average concessions to 2.2% of asking rent. Overall, asking rent was up 0.1% from one year prior.

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HOUSTON OFFICE | 713.469.4513 ©2016 Berkadia Real Estate Advisors LLC

a Berkshire Hathaway and Leucadia National company For sources & disclaimer: apartmentupdate.com/sources

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HOUSTONTHIRD QUARTER 2015




Houston employment increased 2.1% with 61,900 jobs during the last four quarters. The leisure and hospitality industry led hiring,recruiting 16,800 personnel to expand 5.9%. Education and health services companies contributed an additional 12,100 positions tothe metro, up 3.4%. Overall job growth was down from the prior year when payrolls lifted 3.7%, or by 105,300 employees. Part of theslowdown can be attributed to the 2,700 manufacturing jobs eliminated since September of 2014.

Unemployment was 4.3% at the end of the third quarter, 30 basis points lower than one year prior. The decrease continued the100-basis-point drop in the preceding four quarters.

The median existing single-family home price was $214,100 in September, up 7.8% from the end of the third quarter of 2014. Valueshave advanced year over year since 2010. Also in the last 12 months, home sales accelerated 12.7% with 137,600 annualizedtransactions in September.

Residents occupied an additional 4,270 apartments in the last three months. Demand was greatest in the Montrose/River Oakssubmarket where 750 units were absorbed since June. Year-to-date metrowide absorption totaled 14,170 apartments.

Inventory expanded by 4,500 new apartments in the third quarter. One out of every four deliveries was in the Montrose/River Oakssubmarket in that time. A total of 11,780 apartments were completed so far this year. An additional 5,100 apartments are scheduled tocome online by year-end.

Developers pulled back multifamily permitting requests in the last 12 months with 24,060 annualized units filed in September. Even withthe slowdown, issuance was 70.9% higher than the five-year average.

Pent-up demand quickly absorbed the influx of new inventory as vacancy held at 5.2% in the third quarter. The rate also matchedvacancy in September of 2014. Vacancy lowered 60 basis points in the preceding year.

At $1,089 per month in September, the average asking rent was up 0.9% from June. The quarterly increase moved rents 3.3% morethan one year prior. Simultaneously, operators lifted concessions to an average of four days of free rent. Asking rents remained highestin the Montrose/River Oaks submarket at $1,727 per month in September following a 0.5% annual rise.


HOUSTON OFFICE | 713.769.4513 ©2015 Berkadia Real Estate Advisors LLC





HOUSTONFIRST QUARTER 2015




Houston total employment expanded 3.4% with 97,500 jobs year over year. The metro increase outpaced the 2.3% national rise duringsame time. Energy-market troubles were a slight job creation impediment early year, as the annual pace of hiring was down from the3.8% year-over-year increase during 2014. The annual Houston increase was up from 3% growth in the preceding 12 months. Thetrade, transportation and utilities segment led hiring with 22,200 additions. The opening of Sam's Club in the Fort Bend Countysubmarket contributed 190 jobs to the sector. The leisure and hospitality industry followed with 16,500 positions created.

Houston unemployment was 4.2% in March, 130 basis points lower than the 5.5% U.S. average. Local unemployment was down 120basis points from one year ago.

The median existing single-family home price was $204,900 by the end of the first quarter, up 6.1% annually. Values have advancedyear over year since 2012. The rising prices did not deter sales, as velocity accelerated 1% annually with 151,300 annualizedtransactions in March.

Rental demand surged in the first quarter with 5,200 newly occupied apartments, up from 670 units absorbed in the fourth quarter.Overall 18,010 units were absorbed in the last 12 months.

Inventory expanded by 3,540 new apartments in the last three months, 8.5% fewer additions than the 3,870 deliveries in the precedingquarter. Supply growth was substantial in the Montrose/River Oaks submarket with 1,430 apartments coming online.

Developers moved to capitalize on the heightened rental demand by filing permits for 5,600 multifamily units in the first quarter,outpacing the 4,920 units requested during the same time last year. Meanwhile, single-family activity was up 3.5% from the year beforewith 9,290 permits filed in the first quarter.

Vacancy tightened 30 basis points in the last three months to 5.4% by the end of the first quarter. The rate was down 60 basis pointsfrom one year ago.

Average asking rent advanced 0.8% to $1,052 per month in the first quarter. The latest increase was part of a 4.2% rise in rents in thelast year. At the same time, operators trimmed concessions to three days of free rent.


HOUSTON OFFICE | 713.769.4513





46

POPULATION

6,510,500 1.7%

EMPLOYMENT

2,955,300 4.7%

MEDIAN HOME PRICE

$199,700 7.8%

MEDIAN HOUSEHOLD INCOME

$60,400 0.7%

2014 REVIEWHouston businesses created 132,700 positions to increase employment 4.7% in the last 12 months, the fifth year of an expanding labor force. Local job growth significantly outpaced the 2.1% national gains in 2014. The Port of Houston remained an economic driver for the metro, with Princess Cruises and Norwegian Cruise Line creating 100 jobs this year. The education and health services sector led hiring in the metro last year, adding 24,600 workers for a 7.3% increase. The trade, transportation and utilities industry followed, with 23,300 new jobs.

Leasing activity peaked this year as a surge of new apartments came on the market. Renters occupied 18,610 additional apartments, the largest full-year absorption since 2005 when 33,120 units were absorbed. Demand was greatest in the Montrose/River Oaks submarket, with more than 7,000 units absorbed in 2014.

Construction completed on 15,190 apartments since January, 91.4% more than the 7,930 additions in 2013. Nearly one-third of the new supply was in the Montrose/River Oaks area with approximately 4,700 apartments.

With new supply unable to keep pace with rental demand, developers accelerated multifamily permitting activity last year. Submissions were up 33% from 2013, with 22,330 units requested. Issuance has increased year over year since 2010.

With vacancy decreasing in a majority of submarkets, the metrowide rate lowered 70 basis points to 5.2%. The drop followed a 90-basis-point decline in 2013. Demand for new inventory was so great that vacancy even decreased by 10 basis points to 4.4% in the Montrose/River Oaks submarket, as approximately 4,700 new units came online.

An influx of new supply supported a 3.9% increase in average asking rent to $1,051 per month in 2014. Operators accelerated rent growth from 3.7% in the preceding year.

HOUSTON

QUICK FACTS


* Estimate * Estimate

$0

$20,000

$40,000

$60,000

$80,000

05 06 07 08 09 10 11 12 13 14*

AVERAGE PRICE PER UNIT

TRANSACTIONS — SALES VOLUME (BILLIONS)

$0

$2

$4

$6

0

125

250

375

05 06 07 08 09 10 11 12 13 14*

SALES VELOCITY

VACANCY AVERAGE RENT INCREASE AVERAGE RENTSUBMARKETS 2014 2013 2014 2013 2014 2013

Bear Creek/Katy 3.7% 4.4% 3.9% 4.9% $1,077 $1,036Braeswood/Bellaire 4.3% 5.2% 4.5% 4.3% $1,339 $1,281Briar Forest/Ashford 4.5% 5.5% 5.7% 5.0% $1,006 $952Briar Grove/Westchase 4.6% 5.0% 4.7% 3.5% $1,084 $1,035Champions/FM 1960 6.0% 7.0% 1.9% 3.0% $816 $801Clear Lake/NASA 4.6% 5.4% 3.2% 3.5% $905 $877Cypress/Fairbanks 4.6% 5.2% 2.8% 2.9% $994 $967Far NW/Montgomery County 5.0% 5.0% 2.2% 6.4% $1,095 $1,071Interloop/South Houston 5.1% 6.9% 2.3% 2.2% $930 $909Montrose/River Oaks 4.4% 4.5% 3.0% 2.7% $1,726 $1,675

TOTALS 5.2% 5.9% 3.9% 3.7% $1,051 $1,102


47Data and images pertaining to employment, income, permits, population, rents, single-family housing and vacancy are year-end figures. Absorption, construction and apartment sales figures are full-year totals. Numbers for 2014 are estimated values, while 2015 and 2016 figures are forecast projections. The sales information represents transactions of apartment properties with a sales price of $1 million or more. Apartment market data criteria and methodologies vary by market.

0

6,000

12,000

18,000

24,000

09 10 11 12 13 14* 15** 16**

PERMITS DELIVERIES

* Estimate; ** Forecast

VACANCY RENT GROWTH


-6%

0%

6%

12%

09 10 11 12 13 14* 15** 16**

FORECAST 2015Houston employers will hire 106,400 workers during the next 12 months, keeping downward pressure on vacancy. The 3.6% rise in payrolls this year is 130 basis points more than the expected 2.3% national increase in 2015. With the Bayport Channel deepening and widening project set to finish this year, traffic is expected to increase as jobs grow for the Port of Houston in 2015 and beyond as the pending Panama Canal expansion is set to finish next year. Hiring will remain brisk in 2016 as headcounts increase 3.4% with 104,100 new positions. The trade, transportation and utilities sector will again see growth next year when Enterprise Products Partners begins operation of the world’s largest ethane export terminal at the Houston Ship Channel.

Multifamily investment activity remains at a healthy pace, though annual sales decreased last year after peaking with more than 300 transactions in 2013. Velocity has increased among larger properties located in the city of Houston, built in the 1990s. Buyers are targeting these communities in the western part of the metro, located outside the Sam Houston Tollway. In this segment, properties are trading from the mid-$70,000 to mid-$80,000 per unit among in-state investors. Meanwhile out-of-state investors continue to target best-in-class communities also in the suburbs with prices as high as $180,000 per unit.

Renters will target new inventory, as demand remains healthy this year with 13,280 newly occupied apartments. Leasing activity will decrease next year with 12,240 units absorbed.

After deliveries peaked with 15,190 units in 2014, completions will decrease 12.1% with 13,340 apartments scheduled to complete by December. Approximately two out of every five deliveries will be in the Montrose/River Oaks submarket. As the construction pipeline contracts, 10,870 apartments are scheduled to come online next year across the metro.

As developers gauge the effect of the deluge of new inventory on apartment fundamentals, they will pull back permitting activity 2.6% with 21,760 units requested this year. Even with the reduction, submissions will be more than the 13,460 units filed annually since the start of 2010. Permitting activity is expected to increase next year by 3.8% with 22,600 units requested.

After peaking at 10.2% at the end of 2009, vacancy has decreased year over year and will continue to drop in the forecast period. With rental demand comparable to new inventory, vacancy will dip 10 basis points to 5.1% by December. As builders pull back deliveries next year, elevated leasing activity will push down vacancy 30 basis points to 4.8%.

Rents will reach $1,094 per month by December, up 4.1% since January. This year will be the largest year-over-year increase in more than a decade as operators aggressively raise rents, boosted by strong rental demand and a glut of new inventory. Rents will rise more moderately next year by 3.6% to $1,133 per month as concessions are lowered 30 basis points to 2.5% of rents.

VACANCY & RENT

ABSORPTIONEMPLOYMENT GROWTH

PERMITS & DELIVERIES

JOB CHANGE

-6%

-3%

0%

3%

6%

09 10 11 12 13 14* 15** 16**

METRO — U.S.

* Estimate; ** Forecast * Estimate; ** Forecast

-8,000

0

8,000

16,000

24,000

09 10 11 12 13 14* 15** 16**

GAINED I LOST


2006 103,500

2007 89,300

2008 20,800

2009 (107,500)

2010 50,400

2011 81,300

2012 113,600

2013 77,200

2014* 132,700

2015** 106,400

2016** 104,100

Conventional Average Market Rents $1,051 $1,094 $1,133

HOUSTON2014 SALES SUMMARY

SALES VELOCITY

AVERAGE PRICE PER UNIT

2013 ANNUALSALES VOLUME

$5.2 B

2014 ANNUALSALES VOLUME

$5.8 B

SALES VOLUME% CHANGE

10.6%

TRANSACTIONCOUNT

2013313

2014280

AVERAGE CAP RATE

SALES COMPARABLES

MARKET HIGHLIGHTS

Houston multifamily sales expanded 10.6% year over year to $5.8 billion in 2014. Volume was double the long-term averageof $2.9 billion. The rise in dollar volume came as transactions dipped 10.5% annually with 280 sales last year. Buyers shiftedfrom purchases of 1970s product to 1980s and 1990s properties, which fueled the increase in volume.

The average price per unit reached $87,127 in 2014, up 26.1% from the preceding year. With the most Class A sales, priceswere highest in Kingwood and League City at $112,118 per unit and $112,115 per unit, respectively. Metrowide, the averageprice per square foot increased 23.7% to $93 in 2014.

First-year yields tightened 10 basis points to 6.9% last year. Alternately, best-in-class, recent builds sold with cap rates as low as4.7%.


HOUSTON OFFICE | 713.769.4513




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