Q3 2022 Multifamily Real Estate Report: Houston, TX

The Houston multifamily real estate market had a slight dip this quarter with falling absorption and occupancy rates. Houston’s sluggish activity reflects a broader statewide trend of falling occupancy and cap rates.

The city also had lower-than-average sales volume and falling sales prices, with a short-term prediction of slow activity. 

However, Houston’s economic base is strong, with high job and employment growth despite a higher-than-average unemployment rate. The city also has several new multifamily construction projects in the pipeline, with several high-class accommodations under development. 

General Area Overview & Demographics

Houston is the fourth largest city in the United States and the largest city in Texas, with a total population of 2.3 million as of 2023. 

The median age is 33, and the median household income is $53,600. Houston has a diverse population and is a global economic center for medicine, manufacturing, and aeronautics. 

Houston exists in a humid subtropical climate with hot, wet summers and short, mild winters. Houston is in close proximity to the Gulf Coast, so it can experience extreme rainfall and flooding during the spring and summer. 

Houston is possibly the most important economic center in the American south and is home to several Fortune 500 companies, such as Phillips 66, ConocoPhillips, Kinder Morgan, and Sysco Corporation. 

The city has strong activity in the oil and gas sector—one of the main industries that drive Houston’s population and economic growth. 

Summary of Houston Multifamily Real Estate Performance in Q3 2022

Houston had a slight downturn this quarter, only marking 743 units of absorption compared to 3,322 in Q2 2022 and 11,977 in Q3 2021. The quarterly drop in unit absorption reflects the year-over-year decrease from 2021. Only Class A buildings posted positive absorption this quarter at 3,231. 

Unit occupancy also dropped by 20 basis points to 91.0% in Q3 2022 from 91.2% in Q2 2022. Occupancy rates seem to have plateaued after a significant positive spike in occupancy in 2020. 

The quarterly decrease represents a yearly decrease of 60 basis points. However, occupancy rates for Class A properties specifically rose from 87.2% in Q2 2022 to 87.9% in Q3 2022. 

Cap rates also fell slightly from 4.7% in Q2 2022 to 4.6% in Q3 2022. The local decrease was echoed by a statewide cap rate decrease from 4.5% in Q2 2022 to 4.3% in Q3 2022. 

What Are Multifamily Rents Like in Houston?

At the end of Q3 2022, multifamily rents had risen to $1,261 per month from $1,251 per month in Q2 2022. The quarterly rise in rents continues a yearly trend of rising average asking rates, though the increase was lower between the past two quarters. 

Average monthly rents for Class A buildings was $1,799 per month, while average asking rates for Class B and C buildings were $1,259, and $962 per month, respectively. Average rental rates for Class D multifamily units were $749 per square foot. 

Purchase & Leasing Activity

Total sales volume decreased over 40% from just under $4 billion in Q2 2022 to $2.3 billion in Q3 2022. Sales volume in the Houston multifamily real estate market has fluctuated since reaching historical highs of $8.6 billion in Q4 2021. 

The quarterly decrease in Q3 2022 represents a 39% decrease from the same time last year. 

Additionally, median sales prices dropped 9% from $131,870 in Q2 2022 to $119,975 in Q3 2022. Houston’s multifamily price activity was notably in the opposite direction of the state of Texas, which overall saw a quarterly average increase of nearly 20% from $135,415 in Q2 2022 to $163,408 in Q3 2022. 

Notable Multifamily Real Estate Deals in Houston in Q3 2022

Overall sales activity was fairly slow this quarter, though there were still some notable activities and transactions. Domain Town Center is currently listed at I-10 East Woodforest with 352 units, and Jackson Square in Downtown Galveston sold 22 units. 

Additionally, both the Creekside Apartments and Tiffany Bay Townhomes are currently under contract for 72 and 45 units, respectively. Lastly, Colliers brokered a sale of 184 units at the Fountains of Rosenberg in Rosenberg, TX.   

New Multifamily Real Estate Development Activity in Houston in Q3 2022

Houston ended the quarter with a total of 718,780 units across all submarkets. However, Houston only added 3,107 units to its market this quarter, which was lower than the 3,730 and 3,365 units added in Q3 2021 and Q2 2022.  

By the end of Q3 2022, Houston had 17,599 individual multifamily units under construction—up from 15,070 units in Q2 2022. Developers also have an additional 35,200 units in the development pipeline. 

Market Forecast for Houston’s Multifamily Real Estate Market in 2023

Houston is most likely due for a slight cool-off period after several previous quarters of positive activity. In the meantime, occupancy should stay static, but rental rates will continue with steady increases. Houston’s market may also see a slight jump in the near future as it starts to complete its large backlog of multifamily projects. 

Cap rates are still low, so purchasing activity might stay subdued in the short term as interest rates continue to rise. However, Houston’s strong job growth indicates positive growth potential in the long term. 

Takeaways for Multifamily Real Estate Investors

Houston’s had a slight downturn this quarter, but market fundamentals overall remain strong. The biggest current risk for investors is difficulties filling units if occupancy rates continue to drop in the next few quarters. 

Given that Class A properties saw increases across the board this quarter, investors can best take advantage of the Houston multifamily real estate market by acquiring high-quality accommodations. 

Like always, do your due diligence, stay vigilant, and happy investing!