Source: CBRE, Hurricane Harvey: Multifamily Analysis
Source: CBRE, Hurricane Harvey: Multifamily Analysis

Multifamily absorption has quickened in Houston since Hurricane Harvey came ashore on Aug. 25, driving up rental rates and shrinking inventory, according to a report from international real estate firm CBRE.

The analysis, authored by Robert C. Kramp, director, research and analysis at CBRE's Texas–Oklahoma division; Analee Micheletti, senior analyst; and Brad Smith, analyst, notes that before Harvey, multifamily absorption in Houston exceeded deliveries by almost 2,000 units through August 2017. Harvey has accelerated the lease cycle by approximately 18 months. Occupancy has tightened by 120 basis points, and rents have risen 1.5%, according to Apartment Data Services (ADS). Deliveries of new units will taper off significantly in 2018.

"A quickly draining construction pipeline—with less than 7,700 units under way—and reduced inventory due to flooding is causing supply to tighten further while demand from displaced single-family residents, contract workers, and natural growth will orient leasing toward landlords," the analysts predict.

The current development cycle in Houston is winding down, according to CBRE, while demand has been high. “A pre-Harvey supply-and-demand analysis indicates only 3,100 units are scheduled for delivery during 2018, with pre-Harvey demand forecasted at over 11,300 units for the same year,” the analysts said.

Prior to Harvey, CBRE occupancy models indicated a steady rebound in occupancy through 2020, with occupancy reaching the 90% threshold between 2018 and 2019. “Pre-Harvey estimates signaled a market in equilibrium during 2018, with a full transition to a landlord-favored market the following year.”

But the demand from displaced renters and residents seeking temporary housing spiked dramatically after the storm, as more than 6,000 units were leased in the weeks following Harvey’s landfall, according to ADS estimates.

"Harvey effectively accelerated the multifamily recovery time line, propelling Houston into a landlord-favored market 18 months ahead of schedule," the analysts said, adding that the spike in occupancy driven by Harvey-related leasing activity is expected to continue.

Damage Outlook
Roughly 72,000 single-family homes were damaged or destroyed by Harvey. The Texas Department of Public Safety estimates that approximately 3.3% of the Houston metro’s inventory suffered minor damage (defined as residences that are habitable within 30 days after repairs), while destroyed homes represent 0.1% of inventory.

Damage to multifamily properties varied widely from submarket to submarket, CBRE said. According to ADS, market-wide damage was limited to approximately 10,600 units, or 1.7% of Houston’s total market inventory.

Based on preliminary damage reports, the multifamily submarkets most severely impacted are situated in the Northeast cluster, a collection that experienced damage in approximately 5.1% of its total inventory, according to CBRE. Particularly hard-hit were the Greenspoint, Lake Houston/Kingwood, Northeast Houston/Crosby and I-10 East submarkets. Other submarkets experiencing substantial damage were those with significant exposure to Houston’s extensive bayou system—the Med Center/Braes Bayou, Almeda/South Main, Energy Corridor, and Bear Creek submarkets all experienced above-trend flood damage.

On a positive note, a full employment recovery is expected by late October, according to the Greater Houston Partnership, largely because Houston’s economic base emerged from the storm almost completely unscathed.