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Add apartments to the list of things that cost more since the pandemic hit.

Rents are rebounding after a surge in demand over the last several months as the economy reopens, people return to the office and Texas draws residents from out of state. Plus, the extreme shortage of single-family houses on the market is boosting apartment occupancy.

“We are seeing substantive rent growth across the city,” said Ryan Terrell, managing director, client services for Greystar, an apartment development and management firm.

Rents are up about 5.5 percent for new leases inside Loop 610 and 3.5 percent for renewals across the company’s portfolio of 13,000 units, Terrell said. Suburban markets, which fared better during the pandemic as renters working from home sought larger apartments, are up about 3 percent.

“Tremendous appreciation in prices, coupled with really historically low interest rates, are driving people who probably would have bought a home to either renew their lease … or to rent an apartment,” Terrell said.

The median Houston home price reached a record $314,500 in June after rising 20 percent over the year, according to the Houston Association of Realtors.

With demand for apartments on the rise, the incentives that had been offered by landlords are on the wane. At the Alexan River Oaks, a recently completed property managed by Greystar, concessions include one month free rent, Terrell said. That’s down from six weeks of free rent a couple of weeks ago and two months free rent just six months ago.

That fits into a broader trend on the market. In the second quarter of 2020, half of all apartment properties in the Houston region offered rent concessions, according to ApartmentData.com. Those deals brought rents down by 3.6 percent. Now, only 38 percent of properties are offering concessions, lowering rents by 2.5 percent.

At the same time, construction in the sector has been exceptionally strong.

In 2020, developers added 21,781 apartment units across the Houston area, according to ApartmentData.com, though the market only absorbed 11,529 units in the period. Absorption reflects the net change in occupied units. By contrast, 7,526 new units have come online in the first half of this year, and the market has absorbed 20,645 units, according to ApartmentData.com.

It’s the strongest demand since nearly 35,000 units were absorbed following Hurricane Katrina in 2005. For the 12-month period ended June 30, 27,759 units were absorbed.

“Demand is totally outpacing deliveries,” said Bruce McClenny, president of Apartment Data.com. “That would be the signal to raise rents.”

Rents are up 5 percent over the last 12 months to an average of $1,116 per month in June across the region. Occupancy rose for the fifth straight month to 90.7 percent. By comparison, rents dropped by 0.8 percent in 2020 after years of gains or staying flat.

The markets that were hardest hit during the pandemic are making comebacks, with Montrose, the Medical Center and Heights/Washington Avenue showing strong leasing activity as renters return to the urban core, according to ApartmentData.com.

Apartment rents downtown went from an average of $2,139 at the beginning of the lockdowns in March 2020 to $1,767 in February 2021. From there, rents shot up to $2,045 by June.

Demand is on the rise as people are once again drawn to paying premium rent for a 700-square-foot apartment now that theater and sporting events that went dormant during the pandemic are coming back.

“Restaurants have reopened, bars have reopened. People are feeling more comfortable and confident in getting out and want to live close to work in an urban environment,” Terrell said.

Publication: Houston Chronicle

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