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CoStar Market Insights: Houston Apartment Rents Are Still Growing

7 Months After The Storm, Rents Are Still Increasing
April 10, 2018
The floodwaters have long since receded following Hurricane Harvey’s ruinous landfall in Houston, but the impacts on multifamily real estate persist.

The demand for apartments by displaced residents in the wake of the storm resulted in a drastic turnaround among fundamentals, and rents grew in turn. Coming off of the 2016 calendar year in which asking rents declined, any sort of rent growth would have been a positive and welcomed sign in Houston for 2017.

Asking rents grew by more than 3 percent in 2017, an incredible rate of growth and a huge boon for owners in a city where rents declined the year prior. However, leading up to when the storm made landfall, asking rents had only increased by about 0.5 percent over the course of the first eight months of the year. The demand for short-term rentals allowed for landlords to rapidly raise rents in the days, weeks, and months following the storm.

In total, asking rents across the more than 592,000 market-rate units in Houston increased by 2 percent in the first 30 days from the storm’s initial date of landfall on August 25. To put this in perspective, asking rents historically grow by about 2 percent over the course of an entire calendar year in Houston.

While notable, growth of this caliber after a storm is not without precedent. Houston endured a 500-year flood each of the last three years, and cities like New Orleans and Baton Rouge have dealt with similar natural disasters. Analysis of the Houston metro area, therefore, is aided by looking for commonalities and differences from another affected city to see how the dynamics of supply and demand played out.

Baton Rouge dealt with catastrophic flooding in 2016. Roughly 600 days later, the metro is dealing with the results of a volatile demand picture post-storm. In fact, as of publication and 600 days since the flooding struck Baton Rouge, asking rents are actually lower today than they were prior to the storm. After an uptick in demand resulted in a significant increase in asking rents, the subsequent exodus of renters back into their homes has landlords reeling, hoping to find renters to offset the mass-move outs that have and are taking place.

So how does this factor into Houston and the near-term outlook for 2018? Per the chart above, asking rents continue to climb in Houston, albeit at a slowed rate, in contrast to Baton Rouge at this point in the reactionary period. Houston has dealt with its own downturns - both economic and weather-related - but the Energy Capital of the World continues to diversify and attract more and more people each year. Houston added more than 94,000 residents in 2017, which is impressive given recent events.

Landlords are certainly hoping that impressive net migration numbers this cycle will continue into 2018 and offset the impending move-outs over the next six months. While move-outs are a likely reality this year, a slowed pipeline and improving job growth numbers are going to be the driving force behind offsetting any negative net absorption, along with mitigating the potential for slowing or declines in asking rents.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

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