Via Colliers

Multifamily construction may have exceeded demand in Houston, according to Colliers’ latest report.

Demand for Class B and C units decreased considerably in 2022, which led to an overall negative net absorption rate of 767 units — meaning 767 more units became vacant than became occupied. At the end of 2021, there was a positive net absorption rate of 63 units.

“Class B” refers to older buildings that offer less perks to tenants. Properties that appear run-down and or haven’t been renovated are classified as “Class C.”

Meanwhile, there was a positive absorption rate of 12,424 units for Class A properties in 2022. “Class A” refers to buildings that are relatively new and offer high-end finishes and luxury amenities.

The overall occupancy rate for all classes of multifamily units was 90.6% at the end of last year. That’s down from 91.5% at the end of 2021. Occupancy previously hit a low of just under 89% in Q4 2020.

There were 720,599 total units in the Houston rental market at the end of 2022, most of which fell into Class B and carried an average monthly price tag of $1,244. The average rent for Class A properties increased to $1,749, while the average rent of all units on the market was $1,250.

Despite the current surplus of apartments in Houston, there are still over 20,700 units under construction across the city with an additional 33,666 proposed. Colliers predicts that the occupancy rate will continue to drop in Houston as these units are added to the market, although net absorption should increase to positive levels as multifamily construction rates slow.