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HAA State of the Industry: A Recap By

MORGAN TAYLOR, HAA Staff

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fter a year of high economic growth, the Houston economy is subtly slowing down, but panelists at the annual State of the Industry breakfast urged the audience of Houston Apartment Association members to ignore the whispers of an economic downturn. The group of industry experts emphasized the Houston economy and the multifamily market is strong and healthy. “It’s a really good time for Houston … People are saying we are due for a recession – I’m being polite when I say it’s poppycock,” Patrick Jankowski of the Greater Houston Partnership said. According to a press release by the Texas Workforce Commission, Texas added 391,800 jobs last year, and in December the unemployment rate was at a record low for the third consecutive month. In addition, 58 million passengers traveled through William P. Hobby Airport in 2018. Currently, the Private Mortgage Insurance rate is at 50.3 percent, slightly higher than what Jankowski considers an indicator of a good economy when PMI is above 50 percent. PMI has been slowly trending down, which could be the reason why people are fearing a recession, but 50.3 percent is still positive. Oil is currently selling at $54 a barrel, and 11 million barrels are being produced each day. Before the oil bust, 9 million barrels were being produced each day. While the oil and gas industry has been able to increase the price per barrel and production numbers, it is operating with less employees, meaning the oil business has adjusted to work more efficiently. According to Jankowski, Houston may not end 2018 by exceeding or even reaching the number of jobs prior to the crash, but the good news is global trade and international businesses will help lift economic growth in Houston. A Houston Chronicle article written by Staff Writer John Roper reported that the Greater Houston Partnership projects the Houston metropolitan area will add about 71,000 new jobs, which is higher than a typical good year when 60,000 to 65,000 jobs are created. “The Houston economy is the best it’s been since the fracking boom,” Jankowski said. Jankowski, who has experienced five oil downturns in Houston since he started with the organization in 1981, does not predict a recession in the local Houston economy. A slowdown, however, is possible.

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“I do not see a recession for Houston or the United States. We may see slowdown, but not a downturn,” Jankowski said. As for the state of the local apartment economy, ApartmentData.com President, and HAA’s very own market analyst, Bruce McClenny said it best when he said, “We were operating at such a high pace that we got spoiled by great, but we are still doing good.” Prior to Hurricane Harvey, Houston was inundated with a glut of apartment units. Developers were operating in high gear to deliver more than 41,000 units when the oil and gas industry zapped the local economy, sending Houston into an economic downturn. The Houston apartment market became the weakest in the country, and apartment owners were handing out generous rental concessions and incentives to fill vacant units. According to the data provided by ApartmentData.com, in August 2017, the same month Harvey hit, overall occupancy for the Houston market was at 87.7 percent. Then, post Hurricane Harvey, 16,000 units were damaged as a result of the storm. Hurricane Harvey tasked apartment owners and managers with a mission to house victims displaced by the disaster, homeowners and renters alike. The Houston apartment industry rose to the occasion and leased 10,000 units to Harvey victims, with leasing continuing into the fourth quarter. Exactly a year after the storm, in August of 2017, occupancy reached 90 percent. At the end of the year, 17,108 units were absorbed, rent increased by $43 and occupancy balanced out at 89.4 percent. Occupancy remained relatively the same through 2018 with just a slight increase, ending at 89.6 percent. Rent growth continued to rise by another $12 dollars and 7,996 units were absorbed. Last year was a momentous year for Houston in both positive and negative ways. Houston hosted Super Bowl LI in February, which brought $347 million in new spending according to a study conducted by Rockport Analysis. It was the most-watched Super Bowl event with 172 million viewers within 70 percent of homes across the United States. Then, Hurricane Harvey destroyed many parts of our area, but the Houston Astros winning the World Series uplifted the city. Or, maybe the strength the city exhibited in the wake of Harvey carried the baseball team to winning the title. Either way, the Astros winning the World Series following a devastating storm brought even more strength and light to the city.

“We had 16,000 units damaged but 10,000 were leased from Harvey victims. Then, leasing continued through the fourth quarter, which is really unusual. Then, we get into 2018 and we have all these expectations. I’ve said this before, if we were flat in 2018, we would have been doing great. We did a year’s worth of leasing in a really brief amount of time because of Harvey. Everyone is excited about Houston again,” McClenny said. ApartmentData.com predicts the addition of 71,000 jobs and 13,000 units for 2019, with 14,000 units to be absorbed, occupancy to reach 90 percent and an average rent increase of $32. McClenny anticipates most of the growth to come from the Class B and Class C markets, with a potentially flat Class A. Cyrus Bahrami of Alliance Residential is excited about Houston. He said the Houston market continues to diversify, and as population and job growth continues, Houston will remain bullish. Being in a market with long-term growth, he says, is a great option for investors. “Over the last four years occupancy was still steady in the 90 percent range and rents did climb, and I think that is why investors love Houston,” Bahrami said. Like many other similar management companies, Alliance Residential developed a lot of product in 2017, but started selling those projects in 2018 and are making significant profits. “Alliance is the most active group nationally and locally. Still far behind Greystar, but we are working on it,” Bahrami joked. “We currently have seven projects under construction, and another seven are slated to start … We started selling in 2018, and we are going to continue to see that in 2019. As for job growth, 70,000 is a great number. Multifamily always echoes the job growth. It’s great to be in Houston, it’s great to be in Texas.” CEO of Camden Property Trust Ric Campo isn’t worried about the apartment market in Houston, but he emphasized the importance of offering our on-site, front-of-the-line employees quality training and higher pay. He believes this will contribute to a positive and healthy economy and he might have a point. Each of the panelists, including Manu Gupta of Indus Management Group, insisted that it is a great time for Houston and energized the room of HAA members for a positive 2019. In June, be on the lookout for McClenny of ApartmentData.com’s market report in ABODE magazine for another industry update. www.haaonline.org