Deliveries Put Pressure on Multifamily Sector

Greg Willett, vice president of research for MPF/Yieldstar in Carrollton, TX, says the Q1 analysis shows a negative absorption of 6,490 units and 2,527 completions in the quarter. He estimates deliveries this year will hit 14,979. "There is an incredible amount of building," Willett remarks. "Houston is the Number One construction market in the country."

Willett adds, the extra units have had an impact on occupancy. As of March, occupancy was 90.9% versus 91.9% in Q1 2007.

The San Francisco-based RealFacts' first-quarter market review shows 90.5% occupancy, a 0.7% drop since Q1 2007. Its analysis of a 330,323-unit inventory reflected a negative absorption of 817 units. RealFacts tabulates apartment complexes of 100 units or more. Houston-based Apartment Data Services Inc shows occupancy at 87.3% in an inventory of 540,073 units.

[IMGCAP(2)]Teresa Lowery, principal in Colliers International's Houston office, says she isn't surprised by the figures. "As far as absorption, we just added around 4,100 new units to the market over the past 90 days," she tells GlobeSt.com. She concludes that about 1,000 more units are being pumped into the market than are being absorbed, based on today's absorption levels.

Lowery and Colliers' senior vice president Saul Keeton suggest that the additional units aren't a bad thing. "What this is showing is that we have the job growth, employment growth and right types of jobs to sustain growth and development," Keeton says. "We're cranking out jobs like you wouldn't believe."

Lowery predicts absorption and occupancy might continue to be negative for the rest of this year. "We're transitioning from a stale B market that has had no new construction to speak of to a market where we're putting out anywhere from 10,000 to 14,000 units a year and are absorbing it fairly well," she adds.

Willett tells GlobeSt.com that the unknown factor in the multifamily arena is the so-called "shadow market"--single-family homes being put on the market as rental properties, which are most likely kicking up vacancies and putting downward pressure on absorption. "In fairness to developers, the Houston economy is fundamentally sound," he tells GlobeSt.com. "What was not taken into consideration, and what couldn't have been predicted, was competition from single-family stock."

Willett says there isn't a statistical source for the shadow market so it's going to be difficult to predict its impact on multifamily housing this year. But the forecast doesn't show Houston's occupancy falling off a cliff, either. "Occupancy will trend down a little," he says. "But, a lot will depend on that shadow market and what people will opt for."