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HOUSTON MARKET OVERVIEW - 2015
675 Bering Drive, Suite 500Houston, TX 77057T: 713.599.1800F: 713.599.1801
Houston Economy
HOUSTON FACTS AND FIGURES
3
HOUSTON EMPLOYMENT BOOM
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Houston ranks 2nd in terms of employment growth since pre-recession peak among all US metros with a population greater than 1M.
CURRENT HOUSTON EMPLOYMENT STATISTICS:
Total Employment*
2.97MUnemployment Rate
4.3%Y-O-Y Growth Rate
3.4%*Represents total nonfarm employment as of 2/15
91,100
107,000 90,700
21,600
(110,600)
49,700
82,900
118,500
89,900
104,700
(150,000)
(100,000)
(50,000)
-
50,000
100,000
150,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Jobs Added to Houston MSA by Year
HOUSTON FACTS AND FIGURES
5
HOUSTON’S EXPLOSIVE GROWTH
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More people move to Houston than any other major metropolitan area in the US
Metropolitan Statistical Area July 2014 Population Numeric Change
Houston-The Woodlands-Sugar Land, TX Metro Area 6,490,180 156,371
Dallas-Fort Worth-Arlington, TX Metro Area 6,954,330 131,217
New York-Newark-Jersey City, NY-NJ-PA Metro Area 20,092,883 90,797
Atlanta-Sandy Springs-Roswell, GA Metro Area 5,614,323 88,891
Los Angeles-Long Beach-Anaheim, CA Metro Area 13,262,220 86,371
Phoenix-Mesa-Scottsdale, AZ Metro Area 4,489,109 84,980
Washington-Arlington-Alexandria, DC-VA-MD-WV Metro Area 6,033,737 66,561
Miami-Fort Lauderdale-West Palm Beach, FL Metro Area 5,929,819 66,361
San Francisco-Oakland-Hayward, CA Metro Area 4,594,060 64,406
Seattle-Tacoma-Bellevue, WA Metro Area 3,671,478 57,857
Population Growth Comparison: July 1, 2013 to July 1, 2014
Source: http://factfinder.census.gov
HOUSTON’S MILLENNIAL INFLUX
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Houston has seen the largest net millennial influx in the nation which has averaged 12,400 annually from 2010-2013 and remains a top driver for new multifamily development.
HOUSTON COST OF LIVING
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HOUSTON’S HIGH STANDARD OF LIVING
The Houston renter profile has more disposable income than other major metros and supports the number communities charging $2.00+ rents in the pipeline
Houston Multifamily Fundamentals
90.50%
88.10%
87.10%
85.80%
83.90%
85.90%
87.60%
89.40%
90.50%
91.10%
89.80%89.70%
90.60%
80.00%
82.00%
84.00%
86.00%
88.00%
90.00%
92.00%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Proj 2016 Proj 2017 Proj
Assuming Houston gains 50,000 jobs for the next three years (using a 5:1 job to
absorption ratio) Houston will average 10,000 units of absorption which will
translate to occupancy levels well above the 10-year historical average of 87.99%
HOUSTON OCCUPANCY AT A DECADE HIGH
10
Takeaway: Houston fundamentals have never been better situated to absorb the coming supply
Hurricane Katrina
Over supplied by 49,693 units and lost 107,600 jobs in 2009
10+ Year High
Source: Apartment Data Services
HISTORICAL RENT TRENDS
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Takeaway: Houston has observed positive rent growth over the last decade and current rents are at a 10-year high. *2015 figures based on current occupancy and T3 rent growth
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
$-
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Effective Rents Rent Trend
Current Rent Trends:
T3: +9.3% T6: +5.4% T12: +5.4%
Source: Apartment Data Services
HOUSTON’S RISING RENTS
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*Excludes High-Rises
Takeaway: Houston is currently home to 46 apartment communities which achieve effective rents north of $2.00 – more than Austin, Dallas/Ft. Worth, and San Antonio combined.
0
15
27
46
0 5 10 15 20 25 30 35 40 45 50
San Antonio
Dallas / Ft Worth
Austin
Houston
Number of Communities with $2.00+ PSF Rents
Source: Apartment Data Services
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *2015 *2016 *2017
UN
ITS
Houston Multifamily
Supply/Absorption Analysis
New Supply Units Absorbed
HOUSTON SUPPLY AND ABSORPTION
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Sources:
2005-2013 Historical figures based on ADS
2014-2017 New Supply based on ARA database (proposed and under construction projects)
2015 Absorption based on 4X 1Q15 actual absorption (ADS)
2016-2017 Absorption based on Witten Advisors Projections
From 2010-2013 Houston was undersupplied by 31,463 Units
Q1
Q2
Q3
Q4
2015 2016 2017
1st Quarter 6,036 4,756 1,629
2nd Quarter 6,107 1,720 260
3rd Quarter 5,180 1,365
4th Quarter 5,365 944
Proposed 3,312 2,680
Total 22,688 12,097 4,569
Proposed and Under Construction Supply
Supply levels are expectedto reach record lows in 2017similar to years following the2008 financial crisis, whileno pullback in demand isanticipated
Average Annual Supply (2005-2013)11,246 Units
Q1
Q2
Q3
Q4
Pro
po
sed
CLASS A GROWTH BY SUBMARKET
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Takeaway: Downtown Houston is set to add nearly three times the existing stock of Class A multifamily units by year-end 2017 representing growth of 283%
Source: Apartment Data Services
DOWNTOWN’S NEW SKYLINE
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Downtown Multifamily Metrics:
Existing Class A Communities – 4Number of Units – 1,164
New Multifamily Development:
Now Leasing – 1 Community (Skyhouse: 336 units)Under Construction – 9 Communities (2,963 units)Proposed Construction – 8 Communities (2,050 units)
Growth – 283% (based on leasing and under construction communities)
Downtown Living Initiative: $15,000 per unit tax incentive to build multifamily downtown Original cap of 2,500 units was later doubled to 5,000 units To date 16 projects have been approved totaling 4,955 units Skyhouse was the first community completed and awarded
the incentive
Other Notable Downtown Development:
Office – 1.5 Million SF Under Construction 7 High-End Hotels 20-Story Luxury Condominium Tower Complete Renovation of the Alley Theater
Skyhouse - Novare GroupMarket Square - Hines Catalyst - Marquette
Source: Apartment Data Services, downtownhouston.org
HIGH-RISE REVOLUTION
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Houston High-RisesExisting
Under ConstructionProposed Construction
Galleria / Uptown
Downtown Houston
Source: Apartment Data Services
Houston High-Rise Supply
Year Units Projects
2003-2013 2,133 7
2014 1,235 4
2015 889 3
2016 2,023 6
2017 649 2
Proposed 2,370 8
Texas Medical Center
HIGH-RISE REVOLUTION
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Hanover Post OakDeveloper: Hanover Co.# of Units: 355Avg SF: 1,080Eff. Rents: $2.76Submarket: GalleriaLeasing Start: 9/14% Leased: 55%
2929 WeslayanDeveloper: PM Realty Group# of Units: 254Avg SF: 1,497Eff. Rents: $2.90Submarket: Inner Loop WLeasing Start: 6/14% Leased: 31%
Average Effective Rents
$3,057/month ($2.64 PSF)
Current Houston High-Rise Metrics:
Average Year Built
2003
Average SF
1,156
*Metrics include 15+ story multifamily communities
Occupancy (Stabilized)
93%
Inventory
16
2017 Inventory – 27 High Rises (169% Increase)
Source: Apartment Data Services
Houston High-Rise Supply
Year Units Projects
2003-2013 2,133 7
2014 1,235 4
2015 889 3
2016 2,023 6
2017 649 2
Proposed 2,370 8
HIGHEST YIELDS IN TEXAS
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Class Houston Dallas San Antonio Austin
Urban Class "A" 5.00% 4.50% 5.25% 4.25%
Suburban Class "A" 5.50% 5.00% 5.50% 5.25%
Class "B" 6.50% 6.00% 6.25% 6.00%
Class "C" 7.50% 7.00% + 6.75% 6.50% +
Q1'15 Texas Cap Rates
Takeaway: Houston has the highest cap rates of any major Texas market
NOTABLE SALES
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Notable Infill Sales
Broadstone Post Oak
Submarket: GalleriaType: WrapSeller: Alliance ResidentialBuyer: Strategic Capital (Chinese Fund)Date Sold: Under Contract
Virage
Submarket: Inner Loop West/Greenway PlazaType: WrapSeller: JLBBuyer: Crow HoldingsDate Sold: December 2014
NOTABLE SALES
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Notable Suburban Sales
District at Westborough
Submarket: Katy/Far WestType: GardenSeller: KaplanBuyer: Jack FiorellaDate Sold: March 2015
7 Seventy
Submarket: West Memorial/Briar ForestType: WrapSeller: AllianceBuyer: Francis Property MgmtDate Sold: September 2014
TAKEAWAYS
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Houston’s Booming Economy
Nations 5th most populous metro area – 6.5 million residents Over 2.9 million jobs – a 15.2% increase in total employment since 2010 (2nd in US) Largest millennial influx in nation – 12,400 annually (New York: -22,970) Rising wages and low cost of living – Average cost of living adjusted salary: $73,000 Extremely tight single family market – currently 2.6 months of inventory (US average:
4.6 months)
Houston’s Solid Multifamily Market
Oncoming supply will have a greater impact on multifamily fundamentals than job cuts due to low oil prices
Ultra high end product will experience softness in Houston No pricing discount has been seen, just less buyer activity and a smaller buyer pool Opportunity is in second tier Houston markets such as Clear Lake, Kingwood, Cy-Fair
and Pearland where market occupancy is around 95% and little supply is set to deliver
ARA HOUSTON TEAM CONTACT INFORMATION
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David Oelfke x405Cell: (713) [email protected]
Matthew Rotan x406Cell: (713) [email protected]
David Wylie x410Cell: (832) [email protected]
David Mitchell x421Cell: (713) [email protected]
Clifford McDaniel x404Cell: (713) [email protected]
Russell Jones x422Cell: (832) [email protected]
Zachary Springer x428Cell: (713) [email protected]
Matt Saunders x303Cell: (281) [email protected]
Thomas Alleman x434Cell: (713) [email protected]
Brandon Miller x437 (Secondary Markets)Cell: (956) [email protected]
David Marshall (Land)Cell: (713) [email protected]
Tim Dosch (Land)Cell: (713) [email protected]
Tom Dosch (Land)Cell: (713) [email protected]
Clark Dalton (Land)Cell: (832) [email protected]
Adam Allen x433 (Capital Markets)Cell: (713) [email protected]
Holly Minter (Capital Markets)Cell: (713) [email protected]
Tip Strickland (Capital Markets)Cell: (832) [email protected]
David Schwarz (Capital Markets)Cell: (713) [email protected]
Brett Benton x465Cell: (210) [email protected]
Brad Shaffer x806Cell: (713) [email protected]
Chirag Batavia x464Cell: (281) [email protected]
Taylor Gaspard x467Cell: (979) [email protected]
Art Barnes x456Cell: (214) [email protected]
675 Bering Drive, Suite 500Houston, TX 77057T: 713.599.1800F: 713.599.1801
