Last year was one of the most active years on record for the Houston metro area – and our team certainly enjoyed it. We closed 183 multifamily sales in 2022 for a cumulative deal volume of more than $5.6 billion – a record for the Berkadia Houston office.
While the steep rise in interest rates has reduced deal flow for the last two quarters, investor appetite for Houston multifamily product shows no signs of retreating. Case in point: our team has already received more than 300 confidentiality agreements from interested parties for the two garden-style suburban offerings (The Boulevard at Deer Park and Latitude at 2976) we started marketing in mid-January. Unprecedented.
Although 2023 will be a slower year due to the scarcity of product and liquidity, Houston’s multifamily market fundamentals are strong, and it will remain an attractive market for investors due to the quality of the assets and its cost-effectiveness relative to other markets. Put another way, even in the “skinny returns” environment of today, Houston still offers investors attractive pricing on a per-pound basis, and once investors see more deals price in their return thresholds, we anticipate deal flow slowly ramping up again later this year.
Other reasons we think Houston will remain a top target for multifamily investment this year:
- A declining pipeline of new apartment development will benefit fundamentals, supporting organic rent growth. Houston no longer ranks among the top ten markets for new units under construction, according to CoStar.
- Record-low single-family-home inventory, and higher borrowing costs, will hinder homeownership, pushing occupancy and rent growth up toward the latter half of this year.
- Rents will moderate but will still be in the 2 to 4 percent range this year.
- The outlook for the energy sector, and the Houston economy overall, remains positive, according to the Greater Houston Partnership.
Looking further out, we anticipate investors will continue to wait for stability in interest rates, and a pricing reset, before resuming activity. That said, there’s still plenty of dry powder on the sidelines, the debt markets are expected to loosen up eventually.
Finally, multifamily continues to be a favored asset class. Although buyers will still outnumber sellers in Houston leading to strong pricing, near-term debt maturities may force some sellers to reconsider their positions – leading to more opportunistic deals potentially hitting the market later this year and early into next.