Rents Drop in Houston, Climb in Dallas

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Graphic: Where did rent prices change the most in Texas from May to June?

Texas Rent Rates

Operators Wary of Excess Supply in Texas

The Texas economy has been riding high on booming job and population growth in recent years. That market strength unleashed a wave of apartment building. Yet signs that the state may be bracing for slower growth may put a damper on renter demand.

Last year, Texas led the nation in multifamily development. The state issued new building permits for some 66,792 new units for privately owned housing projects with five or more units, according to the U.S. Census Bureau. Texas outpaced both New York and California, which issued permits for 62,116 and 49,736 new units respectively.

Yet absorbing those new units may pose a bigger challenge in the near term as the economy slips into a lower gear. Although employment remains tight at 4.3%, the forecast by the Federal Reserve Bank of Dallas is for job growth to slow to a rate of 1.5% this year, which will translate to a net gain of some 179,000 new jobs. That may be an impressive amount for some stats, but for Texas, it represents a noticeable drop. In 2014, for example, Texas posted a 3.6% growth rate with the addition of about 408,000 jobs, according to the Federal Reserve.

Yet the economic picture varies by industry and by city. Both manufacturing and oil and gas are continuing to lay off workers, while the service sector is reporting the biggest increases in employment. Houston has taken the brunt of the negative impact from low oil prices, but there are some signs that the weakness in the energy sector is beginning to spread to Austin and Dallas in terms of lower job growth numbers. The upside is that Texas continues to be a magnet for new residents. During the 12-month period from July 2014 through July 2015, Texas was the number 2 destination in the U.S. (second only to Florida) with 270,000 people relocating to the state, according to the U.S. Census Bureau.


Austin has emerged as a hot spot for millennials with about one-quarter of the 2 million people living in the city falling between the ages of 20 and 34. Apartment developers have been working to provide new supply to feed the growing demand. Builders completed approximately 8,700 units last year, and they are expected to deliver another 9,000 units this year, increasing the existing rental stock by a further 4.2%, according to Marcus & Millichap.

For example, Austin-based developer Johnson Trube & Associates is moving forward with the construction of Skyloft, a new 677-bed student housing development located one block away from the University of Texas at Austin campus on West 23rd Street. The project will be comprised of 18 residential floors offering 212 units with four levels of below-grade parking with amenities that include a rooftop pool and fitness center, 24-hour study lounges and a media room. Construction is expected to start in August with a tentative completion of summer 2018.

Strong demand for apartments is expected to drop the vacancy rate a further 20 basis points this year to a low of 3.9% by year end. However, rent growth will continue to climb higher. After rising 6.7% last year, Marcus & Millichap is projecting a further 5.4% increase to $1,213 per month. According to ABODO, the average rent on a one-bedroom unit remained relatively flat over the past month at $1,248 as of June.


The big story in Dallas is a surge of new supply. The multifamily construction pipeline in Dallas/Fort Worth swelled to a record high of more than 24,800 units in first quarter, according to CBRE. While those may seem like staggering numbers, it actually represents a modest increase in inventory of 3 percent. Building is widespread across the metro, but nearly one-quarter of that construction is concentrated in Dallas’ Uptown/Downtown area.

One student housing project under construction is a $54 million “town center” project at the University of Texas at Dallas campus in Richardson. Northside at UT-Dallas is a 13-acre mixed use project on the north side of the campus that includes a 600-bed mid-rise apartment and townhome project, as well as shops, restaurants and entertainment. The project, which is being built next to a proposed DART rail station, is expected to be complete in August.

Overall vacancies have ticked up in the past year to reach 6.6% as of first quarter. Vacancies are higher in the new Class A properties that are undergoing lease-up, and remain lowest in existing Class B properties where vacancies are at 4.5%, according to CBRE. In addition, average market rents continue to increase. According to ABODO, the average rent on a one-bedroom increased to $1,217 – up 2% compared to the $1,198 in May.


The oil boom fueled a wave of high-end, luxury apartment building in the Houston metro. Most of that construction has been focused on the west side and inside Loop 610. By the end of 2016, developers will have created about 35,000 new units over the past 24 months. Although its diversity in other sectors has helped to lessen the blow from the downturn in the energy sector, Houston’s building boom along with a pullback in demand has resulted in elevated vacancies and growing concerns that the apartment market is overbuilt, notably in the high-end segment.

Overall, vacancies are expected to rise 30 basis points this year to reach 6.5% by year-end. Despite the increased competition, rents are expected to continue to move higher, likely due to the higher rents being charged at the newly built properties. Marcus & Millichap is predicting that rents will rise 4.5% this year to average $1,060 per month. According to ABODO, the average rent for a one-bedroom actually dropped to $1,398 in June, down 6% compared to the $1,482 recorded in May.

One notable student housing project underway in the Houston area is Century Square, a mixed-use project on 60 acres adjacent to Texas A&M University in College Station. The property sits on 60 acres owned by the university along University Drive between Texas and College avenues. Century Square features retail, restaurant, and entertainment options, along with 90,000 square feet of office space, two full-service hotels and luxury apartments. The first phase of Century Square is set to open in the fall of 2016.

*Image courtesy of Wikipedia