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While apartment construction has seen a precipitous decline this year thanks to the Covid-19 coronavirus pandemic, Houston remains a hotbed of building activity.

A recent report released by online research firm RentCafé found that Houston ranked No. 3 in the nation in terms of anticipated apartment deliveries.

RentCafé found that Houston developers are expected to deliver 10,404 units this year, putting the Bayou City behind just Dallas-Fort Worth, which is expected to see 19,318 units delivered, and New York, which anticipates 15,952 new units. Dallas-Fort Worth has held the No. 1 spot for the past three years.

The Houston market is facing the competing pressures of a rising population, which has helped to spur multifamily development, and a lagging energy market, which has made some lenders wary of providing debt to large-scale developments, RentCafé’s report said.

Rounding out the top five on RentCafé’s list were Atlanta, with an expected 10,208 new units, and Austin, with 9,342 new units.

San Antonio, the only other major Texas city to be ranked, came in at No. 19, with 4,594 new units expected to be delivered this year.

Houston was also among only a handful of major U.S. cities that saw an uptick in the number of new units scheduled to be delivered. Of the seven cities expected to see an increase in deliveries, three were in Texas.

However, Houston’s expected increase in deliveries is just 2%, putting it at the bottom of the list of Texas cities in terms of anticipated growth. San Antonio is anticipating a 20% increase in delivered units, and Austin expects to see a 9% increase.

Dallas-Fort Worth, on the other hand, is anticipating a 29% decline in new deliveries, according to RentCafé.

With a 100% increase in anticipated units, San Jose, California, is No. 1 in the country by that metric. San Jose expects to see 5,829 new units delivered in 2020.

Nationally, multifamily development is down 12% from where it stood in 2019. RentCafé reported that 283,114 new apartments are expected to be completed this year.

RentCafé attributed the decline to the slower pace of construction, as a result of a shortage of available construction crews, funding and permits. Some cities and states have also had to deal with temporary construction bans as a result of Covid-19.

“2020 has been a difficult year for the apartment industry, with more than half of developers reporting delays in construction due to the pandemic,” the report said. “With projects dragging and some new projects hitting pause, many U.S. metros are likely to see fewer new apartments in the coming years.”

RentCafé based its report on data collected by its sister company, Yardi Matrix. To compile this report, RentCafé analyzed new apartment construction data across 99 U.S. Metropolitan Statistical Areas. The study was based on apartment data related to buildings containing 50 or more units. Metros with less than 300 units or less than two properties/buildings were not included.

While developers continue to build apartments in Houston, average rents and occupancy rates are declining.

In July, Houston-based ApartmentData.com and Los Angeles-based CBRE reported that the average rent for an apartment unit in Houston fell by 1.3% last quarter and that citywide multifamily occupancy rate dropped 40 basis points, with higher-end developments taking the biggest hit.

The average effective rent per unit in Houston last quarter was $1,045 per month. Rents for Class A units fell by 3.7% during Q2, compared to the 0.9% decline the city’s Class B units saw.

Meanwhile, the citywide occupancy rate stood at 88.8 percent during the second quarter of 2020.

CBRE attributed the declines to the number of new high-end units coming to market.


Publication: Houston Business Journal

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