HOUSTON-Although the economy is chugging along, churning out jobs and population increasing, the so-called "Katrina effect," which caused occupancies to skyrocket at the end of last year, is now starting to disappear, especially in the class C category.
Local experts tell GlobeSt.com that the multifamily market is starting to soften because many hurricane refugees who settled into apartments in fall 2005 have either returned to New Orleans and other places or bought houses in the area. "Occupancies are dropping rapidly and I expect within the next six to 12 months, we'll return to pre-Katrina levels or lower," says Kathryn Koepke, manager of research and consulting for O'Connor & Associates of Houston.
Craig LaFollette, executive vice president for CB Richard Ellis' Houston office, says the Katrina residents who are still renters are primarily in C-grade apartments. "The last three months indicated negative absorption and I'm surprised it isn't higher than it was," he tells GlobeSt.com.
Despite the softening market, concessions have all but vanished. About a year ago, Robert Su, senior associate in Houston for Marcus & Millichap Real Estate Investment Brokerage Co., says it was common to see one or two month concessions being used to attract tenants, but now concessions tend to be measured in terms of weeks rather than months. "The only properties offering any type of concessions are those that are short of funds or not as well-run," he adds.
O'Connor's Koepke believes that the tapering off of concessions is most likely temporary. "They dropped off completely after Katrina, but they'll have to creep back in," she says. "Absorption levels are negative, especially among Bs and Cs. To get people to rent, you'll need concessions."
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