Houston’s rankings as a real estate market have been on a rollercoaster ride over the last several years. Back in 2014, before oil prices crashed, the city was ranked first in PwC and the Urban Land Institute’s Emerging Trends survey, then subsequently took a tumble, and this year has landed in the middle of the road; the 2020 Emerging Trends report ranks the city #42 out of 80 in terms of its overall prospects. It’s hardly perfect, but the city has moved up from #60 last year – and this is an expansive evaluation.
Every real estate market is made up of multiple distinct sectors and in Houston, and while prices for Houston’s luxury properties are falling, apartment rents are set to rise. For investors, then, now is a good time to buy multifamily construction or to reevaluate your current lease agreements based on changing market norms.
One reason that pricy Houston homes are looking at potential value loss is that owners and investors are preparing for a recession. Though these types of broad economic trends can be difficult to predict, economists are expecting a general economic downturn and many investors are adding more B- and C-class rentals to their portfolios. Meanwhile, blocked from meaningful investment in real estate themselves, more people are expected to seek out apartments during the recession.
In addition to taking on more B- and C-class rentals, it’s important for investors to recognize that whatever properties you do acquire during this time are entirely for cashflow. Properties don’t appreciate during a recession, but real estate is a much more stable investment option during a recession than stocks. Unlike other investments, property prices always go back up eventually, and when managed correctly they’re still a source of cash flow, even when they’re in a slump.
Typically, Houston rents average an increase of about 3.2% a year, but according to current predictions, rents should rise about 4.2% in 2020, the most significant increase since the period immediately after Hurricane Harvey. Hurricane Harvey pushed a lot of homeowners into apartments because their properties were damaged. This kind of increase is unusual during a recession, so why are we expecting such a jump this time around?
Rent increases are set to be so high in Houston specifically because of current employment trends. The city has been growing, with Houston gaining almost 83,000 jobs between July 2018 and June 2019. All those workers need places to live and since 17,600 of those jobs were in professional and business services roles, A-class rentals are likely to continue thriving in Houston; they normally take a hit during recessions, but job growth isn’t slowing either. Clear Lake is planning a $40 million medical office while a huge international terminal project is underway at George Bush International Airport.
Another element that’s been pushing prices up in Houston is the fact that, compared to a lot of the country, there’s not a lot of multifamily construction happening, and the market could certainly sustain some. It’s a tricky balance because new construction is typically pricier than comparable older units, but a market with too little housing to meet demand has the potential to push everyone out of the area, including employers. Houston could benefit from some mid-range multifamily construction, along with affordable options for younger workers. Like most cities, Houston is currently at risk of an affordability crisis and that’s a bigger risk than a recession in the long term.
With an influx of workers, steady job growth, and big investments in multi-family housing expected in Houston, what can property owners do to compete? One thing that potential tenants want to know about a property is its maintenance history, particularly whether the property has a history of flooding. After Hurricane Harvey, as much as 7 to 11% of the city’s apartment stock was deemed uninhabitable. That’s one reason why rental rates are so high in the city to begin with – a lot of units are out of commission. Owners who can assure tenants that a property doesn’t have a flooding history, and the structural problems that come with that, can go a long way.
Unsurprisingly, amenities are also a major factor when it comes to which properties rent and which sit empty. On the upper end of the market are properties like Pearl Marketplace at Midtown which houses its own Whole Foods, a resort-style pool, and an extensive athletic club. Midtown is one of the priciest areas in the country, so this sort of amenity profile isn’t out of place, but it’s hardly necessary in most of the city.
Among younger tenants, the most popular amenities aren’t necessarily contained within the individual apartment complex, but are more about location – and Houston has a lot to offer on that front. Where applicable, properties should be promoted based on their live-work-play potential. Many Houston suburbs are leaning on this model, creating broad developments designed to attract young workers. And while this model is most popular among Millennials, Baby Boomers headed into their retirement years are also seeking vibrant communities since they’re living longer and enjoying better health.
In a competitive market, management can determine how successful you are at attracting and keeping tenants – and most real estate investors don’t excel in this area. Its less technical and more client-oriented and, more importantly, management is an around the clock job. That’s why, if you want to thrive as a Houston investor, you need support.
At Green Residential, we specialize in Houston-area property management and we understand what it takes to succeed. That’s why we offer comprehensive services including staging and marketing, tenant screening, maintenance, and even eviction services. Most importantly, though, Green Residential is a family business with over 30 years of experience operating in the Houston area – and we want you to be a part of your family.
To learn more about how Green Residential can support your property management needs, contact us today. Don’t let poor management keep your properties from thriving. It’s a good time for Houston’s real estate market, so don’t miss out.
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