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CoStar Market Insights: Three Most Active Multifamily Submarkets in Houston

Top Three Submarkets Seeing Most New Apartment Construction
August 6, 2017
Nicholas Mills is a market analyst with CoStar Market Anaytics covering the Houston  market.
Nicholas Mills is a market analyst with CoStar Market Anaytics covering the Houston market.

Neartown/River Oaks Lays Claim to Live/Work/Play Title

Touted as Houston’s true live/work/play submarket, Neartown/River Oaks offers apartment renters a little bit of everything. River Oaks, Midtown, Montrose, Upper Kirby and Afton Oaks provide a range of diverse living, working, retail and entertainment destinations that continually attract the who’s who of Houston. In addition, regional attractions such as Memorial Park and the River Oaks District as well as access to Uptown, the Museum District and the CBD, all provide renters with plenty of options.

More than 10,000 apartment units (15% of the Houston metro’s total supply from 2010-2016) have been added to this submarket over the past six years, the most of any other submarket in Houston. In 2016 alone, more than 2,000 new units delivered to Neartown/River Oaks, the largest year-over-year supply addition in Houston. Another 2,300 units were under construction as of July of this year, representing a significant percentage of the metro’s under-construction supply.

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Downtown Living Initiative Transforming Submarket

Downtown Houston’s transformation is well underway. The city’s Downtown Living Initiative, which offered tax rebates of $15,000/unit to developers, has spurred unprecedented development in Houston’s core.

Although the incentive plan has reached its cap, the program’s impact on supply volume in the Downtown submarket will be felt for quite some time. At least 17 new projects accounting for roughly 5,000 units were approved under the tax rebate program.

The program first began to bear fruit in July 2014 when the Downtown submarket saw its first new apartments in five years, the 336-unit SkyHouse Houston. The 5 Star high-rise’s average asking rent is in the $2 per square foot range, but generous concessions put the effective rent rate closer to $1.90 per square foot, on average. More recently, the 4 Star 400-unit 500 Crawford Apts. delivered its first set of units in March 2016 and was almost 70% occupied in July, offering two rent-free months as part of its initial rent-up.

Stalwart Galleria/Uptown Keeps Appeal

Considered Houston’s second CBD, Galleria/Uptown is one of the Houston metro’s premier office submarkets, home to many of the region's largest employers, including Marathon Oil, BHP Billiton and Spectra Energy. Commuters in this submarket also enjoy a reasonably short drive to Downtown and the Energy Corridor, and also offers a wealth of dining, culture, and shopping options, including at the Galleria Mall, the largest in Texas, making it one of the most desirable locales in the metro for businesses, residents and tourists alike.

Competition for tenants is getting white-hot in Galleria/Uptown. More than 3,000 apartment units were added in this submarket from 2010 to 2015, and another 1,400 units are expected to deliver in 2017. Meanwhile, Galleria/Uptown must compete with neighboring Neartown/River Oaks and Westchase/Woodlake, both of which have generated similar levels of supply and boast similar, if not more, neighborhood amenities.

The competition is evident in recent multifamily rent trends. The 238-unit Astor Tanglewood opened in February 2015 and stabilized in 13 months, offering two free months on most floor plans. Through the second quarter of this year, asking rents averaged $1.80 per square foot, down from $2.05 per square foot in 2015.

CoStar Market Insights is a new feature providing a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 206 metro areas, with a granular understanding of the projects, players and economic trends that move these markets. Learn how CoStar Market Analytics can add to your market knowledge, helping to minimize risk and maximize returns.

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