Experts from Houston discuss the multifamily sector in Texas.

HOUSTON- There’s little doubt that 2012 was a highlight year for the multifamily sector in Texas. Occupancy throughout the four major cities (and the state, for that matter), was well above 90% to 92%, with limited product coming online (though more is under construction in Dallas and Austin than in Houston). Thanks to investment and renter activity in the multifamily sector this past year, “most brokers and principals are smiling,” comments Ed Nwoediki senior director, Apartment Brokerage Services at Cushman & Wakefield of Texas Inc.

Richard Campo, chairman of the board and CEO with Camden Property Trust also didn’t mince words concerning 2012. “It’s probably the best business environment we’ve had in Texas for the past 20 years,” he remarks.

Both Campo and HFF Senior Managing Director Craig LaFollette point to jobs growth as the reason behind the multifamily sector demand. “Houston has led in this area, but job growth across the state is very strong,” he says. Campo, who heads a nationally operating multifamily REIT goes even further, pointing out that Texas is in the top quartile of the 16 markets in which Camden operates. As a result, rent levels are at their highest – and are continuing to grow.

Also growing are the buyers coming to Houston and Texas in hopes of investing in the growing market. Nwoediki says investors come to the Lone Star State because of yield – yield that can’t necessarily be found in California or Florida. This is a given, especially in the area of class A product. But what’s been surprising in recent months when it comes to investor demand pertaining to class B product.

“Many are looking at changing their sights from class A product to class B product, where they see meat on the table,” Nwoediki explains. “They can do some light repair and rehabs, raise rents considerably and realize good value.”

This is not to suggest that there is a whole lot of product on the market from which to choose, however. “One of the challenges of the market today,” Campo points out, “is that high-quality properties are hard to get.” Adding to the issue is that, with low interest rates, there is more motivation for today’s multifamily property owner to refinance rather than to sell. As such, “any availability out there is on a selective basis,” Campo comments.

But Nwoediki predicts that more product will come to market in 2013. “Many owners of properties have held back to see what the activity will be,” he explains. Added to the scenario are that multifamily construction starts throughout Texas remain low, especially in light of demand.

Though much of the rental activity continues to be supplemented by renters who can’t afford the 20% down required when it comes to buying homes, LaFollette points out that the renter-by-choice category has also grown. A great deal has been written about the young, urban professionals who aren’t interested in being tied down to a mortgage. But LaFollette says there are other demographics at play as well.

“We just brought 1200 Post Oak, a 33-story high-rise to market. In interviewing the manager before marketing it, we learned that the demographics at the property have changed during the past three years,” LaFollette comments. Three years ago, the age bracket was 20-35. These days, 35-year-olds encompass the lower part of the range. “The manager said she’s seeing a lot of people who are selling their homes in the suburbs and moving back into town,” LaFollette says.

“Into town,” in fact, is where much of the leasing activity is taking place. LaFollette points out, and quite rightly, that most of the jobs are located among infill areas; in Houston, these areas include the Galleria, the CBD and, to an extent, the Energy Corridor. In Dallas, Uptown, Las Colinas and the so-called “Platinum Corridor” are the main spots for job growth.

It stands to reason that growing demand has led to construction of new properties. Even with new construction and supply coming on line, the experts aren’t worried about too much inventory flooding the market. Campo believes that 2013 will continue the trend of 2012, namely that demand will be larger than supply. LaFollette notes that rent growth will likely taper off in 2013, but it will still be a strong year for multifamily.  Campo agrees, stating that 2012 was such a strong year, it’ll likely be hard to replicate it. Still, “even if you don’t do as well as you did in 2012, it will still be a good year for multifamily in 2013,” he comments.