Houston's Multifamily Market May Be Oversupplied, But Condos Are Not
2018-4-19 15:51:21, Kyle Hagerty
Thanks to Hurricane
Harvey, Houston's multifamily market avoided much of the pain from years of
overbuilding during an oil downturn. With the positive effects fading, adding
new supply is still hard to rationalize. But new condos? That is another
story.
This year, Houston's
multifamily sector will add roughly 7,000 units, compared to 21,191 in 2016 and
13,719 in 2017. The slowdown is a welcome change of pace.
"My hope is we that
we don't have the level of units being developed in the past," Alliance
Residential Managing Director Cyrus Bahrami said. "I think investors
learned during the last few years. We don't need 50,000 units over a
four-year period."
Despite the high levels of
supply, Bahrami is still betting on Houston. With several projects in the works
and others still leasing up, the summer months, when apartment leasing is at
its peak, will be yet another shot in the arm for Houston's
multifamily sector.
Bahrami spoke at Bisnow's
Multifamily Revival event Thursday morning at The Westin Galleria, where over
300 multifamily sector professionals gathered to hear the latest
developments in the Houston market.
Houston's condo sales also
jumped after Hurricane Harvey as Houstonians looked for alternative housing.
Between projects like Arabella and Astoria, high-profile condo
developments are all over Houston and more are on the way.
"You see the amount
of condo inventory compared to other major metros, it's a shame we don't have
as many as other major cities," DC Partners Chief Operating Officer Acho
Azuike said. "In a city our size there can be a lot more."
Stolz Partners, behind
Giorgetti Houston and The Sophie, looks for signs of a vibrant urban core,
which is exactly what Houston has been developing recently, according to
Stolz Partners founder Will Stolz.
"The other piece we
have to have is a buyer that can afford the product, it has to be an area
of affluence. The list of cities you can build in gets much shorter when
you look at it that way," Stolz said. "For all its ups and downs,
Houston is a very affluent city."
Houston's condos are
selling in the $600 to $900/SF range, Stolz said. While that is a lot locally,
compared to other major metros with robust condo markets, it is relatively
low.
Houston's biggest problems
are land and construction prices. Houston's land prices have not gone down and
construction prices have risen in the wake of Hurricane Harvey as construction
workers and subcontractors work to complete residential projects. The result is
construction costs on par with other major metros, but lower sale prices.
"Harvey's effect on
the construction industry has lingered, but I think we're getting past that
now,"Arch-Con Corp. Senior Vice President Michael Vaughn said. "Only
about 15-20% of damaged homes still need work."
Bahrami said investors are
beginning to lower their expectations on returns in Houston. When
combined with the increasing push to go vertical, deals are still able to be
penciled out in the right areas.
"There's a growing
belief from investors that Houston has great downside protection. If you buy it
right, develop it right, it's a good investment opportunity."
Link: https://www.bisnow.com/houston/news/multifamily/houstons-multifamily-market-may-be-over-supplied-buts-condos-are-not-87536
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