Multifamily Inventory Down, Absorption Up

HOUSTON-When Hurricane Katrina hit New Orleans during Labor Day weekend 2005, residents of the Big Easy fled to points north, east and west. Given the city's proximity to Houston, many of the refugees, unable to find hotel rooms or apartments in Baton Rouge, LA or Beaumont, TX, ended up in the Bayou City.It was predicted, at the time, that the influx of evacuees would make a huge dent in Houston's overstocked multifamily inventory. According to a new report issued by O'Connor & Associates four months after the fact this indeed has been the case.Overall, the report notes that occupancy and Katrina has dramatically impacted absorption levels, especially in September, with class A posting occupancy levels at its highest levels in awhile at 93.8% and class B at 92.33%. By the end of September, 16,933 units had been absorbed which, according to Richard Zigler of O'Connor & Associates, had been nearly 10 times the absorption rate noted in August.What helped spur the continued activity in hotels and housing is Houston's generous 12-month voucher program, backed by FEMA. However, as FEMA has announced cutting back on the amount dedicated to the program, and as other cities in Texas have discontinued their lease programs, more "double evacuees," those who fled to other cities from New Orleans, but are on the move again, are coming into Houston."FEMA will have to honor those vouchers for at least a year," Zigler tells GlobeSt.com. "No one wants to see any of those folks out on the street."However, as the report has pointed out, demand levels have dropped since their peak in September, with preliminary Q4 absorption levels showing 4,538 units absorbed.The report also predicts that, throughout 2006, leasing in classes B and C will remain strong, while class A will decline slightly, as the middle class and wealthier renters either return to New Orleans or move from hotels and apartments to buy houses in Houston.The concern among many sources is that the apparent vacancy and absorption levels might lead to a stampede from multifamily developers. "I think, in a situation like this, we could see more out of town developers coming in here, as they see the headlines and might have a sense of what's going on, but maybe not have that ground-level knowledge," Zigler says.Rental concessions, in the meantime, have all but disappeared for the time being. "The average concession was about one month of free rent," Zigler says. "But that's gone now."