In his recent webinar, Mark Humphreys, CEO of Dallas-based Humphreys and Partners Architects, talked about a demand explosion in El Paso, Texas, fueled by a couple of demographic factors unique to that metro. In fact, Humphreys himself recently completed two projects in the town.
With the military adding more troops at Ft. Bliss, which has doubled its employment in the last couple of years, and cartel violence across the border in northern Mexico pushing families into El Paso, there has been a lot more demand in the city recently. Gary Sapp, president of the Southwest Division of the Hunt Development Group, says the influx has been estimated to be as high as 100,000 people, though he finds that hard to believe.
“It’s now the middle class who’ve scraped up enough cash and gotten their immigration paperwork processed and are moving their families into rental housing in El Paso,” he says. “
Housing developers of all stripes have worked to feed this demand. Greg Willett, who heads the research and analysis team at MPF Research, says deliveries in the city were around 1,400 units in 2011 and should be around 600 units in 2012. The market only has about 44,000 existing units. On the for-sale side, Sapp says El Paso’s home builders have recovered to pre-recession production levels, although median new home prices are down across the board.
But this new supply is starting to take its toll. Willett cautions that Hispanic neighborhoods across Texas often have seasonal loss in the fourth quarter. In the fourth quarter of 2011, occupancy in the metro dropped 1.4 percentage points. But, dig a little deeper and you’ll see the annual decline was 1.6 points. “The fact that there’s some new supply moving through initial lease-up here didn’t seem to impact the most recent overall occupancy shifts to an especially notable degree, as communities in the same-store sample set exhibited the same pattern seen in all product examined,” Willett says.
Occupancy is still a solid 94.5 percent in the city, with rent growth at 2.4 percent, according to Willett. “The product inventory growth pace in El Paso is set to register at a larger-than-typical pace for a while, suggesting that good but not spectacular rent change results will be seen throughout the near term,” Willett says.
Still, occupancy in the mid 90’s is nothing to scoff at. There will be economic drivers like a replacement for the Beaumont Army Medical Center. But the immigration demand may not ultimately be sustainable with some of those people moving back if the violence subsides. “We rarely get questions about opportunity in El Paso, simply because downside risk is too great for many investors to digest,” he says.