Texas Multifamily Rent Growth
How are you underwriting rent growth in DFW, Austin, San Antonio, and Houston over the next 24 months? Texas is definitely going to suffer from oversupply, I still think there are attractive value-add deals in these markets.
An increasing number of apartment operators in Texas have resorted to cutting rents. In July, 53 out of 113 submarkets across Austin, Dallas, Fort Worth, San Antonio, and Houston saw YoY rent declines. This represents a significant increase from just 24 submarkets with rent cuts in June. The trend has accelerated rapidly in recent months.
Austin Faces The Steepest Drop:
The steepest rent cuts statewide occurred in Austin, where nearly every submarket logged declines. After large rent hikes of 20-30% in 2021-2022, the market is now correcting. The deepest annual declines in July were 7.2% in Northwest Austin and 6.6% in Cedar Park. Other Austin submarkets saw drops around 6%. While apartment demand remains strong in Austin, massive new supply is being delivered faster than the market can absorb. Over 13,300 new units were completed in the past year, increasing stock by 4.6%. An additional 32,000 units are slated for delivery soon, signaling more rent cuts ahead.
Strong Underlying Economic and Demographic Trends Remain:
Though rent cuts have become common in major metros with abundant new supply, this trend may not last long and investors still see opportunity. The Texas job market remains a key driver of apartment demand, accounting for 20% of all US job growth recently. Domestic migration to Texas also continues at record levels. As a result, though substantial new supply has strained pricing, underlying demographic and economic factors suggest rent declines could be temporary.
This is good stuff. I’ll probably do nothing with this info and continue to underwrite my firm’s standard 3% rent growth assumption regardless of market :)
Same, although we've finally started to get pushback on that. Everyone wants to see untrended numbers right now.
I'm sure they always adjusted our assumptions using untrended numbers, or lower rent growth, but they are now being overt about it.
Lol, yeah that's how it goes.
Flat market growth over the next 18 months.
Austin will have negative growth and vacancy is expected to be over 10% before the end of the year.
I like Austin but it has definitely overbuilt. Dfw will be able to absorb better than Austin.
Houston isn’t over developing. I think rents will grow but at a slower rate and occupancy will be fine. Houston has major expense issues though, so tons of sponsors are going to get foreclosed on in that market. Arbor just took back Cabo San Lucas and it probably isn’t worth half what they lent on it. The judge looking at the evictions just tossed 150 evictions, which is ridiculous, and is going to further hurt the property. Arbor is over exposed on a lot of loans in houston but I assume the rest of the debt funds and clos are also over exposed in that market and most other markets.
Can you elaborate on the expense problems in Houston?
Our insurance went up 90% from 2020 to 2023. I think the deductible is high enough to where we won't bother filing a claim unless a hurricane directly hits us. And this property is around 30-40 miles inland.
Insurance and taxes have exploded in Houston.
20k units coming online in Austin in 2023!
Think Austin will be very submarket dependent. East side has massive incoming supply in areas that traditionally have been lower income. Other pockets have stronger demand and significant barriers to entry (zoning, environmental, no available land) that will prevent oversupply
Houston insurance is running between 1,500 and 2,250 per unit.
If you are in dfw, az, Utah, Boise, , Ohio, etc. and you get a 20% increase, it sucks but doesn’t move the needle much.
In houston, pro forma operations are getting blown up by the increase in insurance and to a lesser degree taxes.
People that bought on high ltv, variable rate loans in houston and also have to deal with higher insurance rates and taxes are toast!
As others have mentioned, very submarket-dependent.
Austin:
The insane rent escalation was never really sustainable but the downward effect is really product type and location dependent.
I'll probably respond to this with a Dallas/DFW breakdown once I get some more time (Houston is in a rough spot due to insurance and stuff not pencilling due to already lower rents than Austin/Dallas).
Found some time outside of everything else going on
Dallas:
Dallas is a bit weird when compared to Austin since what people consider to be "Dallas" varies widely but for the purposes of this I'll split it up a bit (might do a follow up with other cities that fit into DFW)
Dallas Proper (aka the City of Dallas limits):
Okay that was probably excessive (and if I misspoke/have typos I drafted this in one take), but when I find more time (broken record), I'll add some broader details about surrounding cities.
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