Houston's Performance Takes a Turn for the Worse

 Most apartment owners and managers operating in multiple markets across the country will tell you that Houston has been a comparative bright spot for their portfolios during the national downturn. But the metro turned in a weak 3rd quarter performance, losing residents in what is normally the seasonal high point in leasing activity and suffering notable rent cuts for the first time during this cycle.

Houston apartments registered net move-outs from 2,760 units during the July-September time frame, taking the overall loss so far during 2009 to about 7,900 units. While demand is holding solid for new properties moving through initial lease-up - almost 3,900 top-of-the-market units were absorbed during the past quarter alone - this top-tier demand can't keep up with the slide occurring in the middle segment and bottom end of the market. Those resident losses reflect that this latecomer to recession now is dropping jobs at a serious pace. The Bureau of Labor Statistics reports about 95,000 jobs eliminating across metro Houston during the year-ending August, downsizing the total base by 3.6 percent.

Houston's net move-outs are coming at the same time that considerable new supply continues to reach completion. Properties totaling another 4,544 units were finished during 3rd quarter, taking year-to-date deliveries over the mark of 13,100 units.

The ugly supply/demand relationship seen so far this year lowered Houston's overall occupancy rate to 88.3 percent as of September, off 1.4 points on a quarterly basis and down 3.9 points so far during 2009.

While apartment rents in Houston had been holding basically steady, 3rd quarter's leasing struggles were enough to trigger some meaningful cuts in pricing. Properties included in both the June and September surveys reduced rents by an average of 2.1 percent during that three-month time span. Concessions suddenly were seen at 59 percent of the product examined during 3rd quarter, whereas that share had been holding steady near the 40 percent mark for about a year and a half.

The good news for Houston is that the metro is nearing the end of the current burst of building activity. Completions during 3rd quarter took ongoing construction down below the level of 10,000 units for the first time in quite a while. But like most of the rest of the nation, Houston now is waiting for job production to return and jumpstart demand, before its apartment sector can regain some lost ground.

Originally published on October 12, 2009, by Greg Willett

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