In the apartment construction industry, one simple premise often guides developers: Increased job growth creates a demand for housing, which leads to new construction.

Despite significant declines in job creation, apartment developers have an estimated 30,000 units under construction in the Greater Houston area. However, while the supply of apartment units has outpaced demand because of slow job growth in the region, developers have been more cautious in Cy-Fair.

In the two submarkets that comprise Cy-Fair—Bear Creek/Copperfield/Fairfield and Jersey Village/Cypress—only four apartment complexes have opened in the past 13 months, according to data from Apartment Data Services LLC. This has caused rental rates to remain flat despite economic challenges, ADS President Bruce McClenny said. 

“There are other markets in town that are going south,” McClenny said. “Supply here is not that overwhelming to impact pricing that much in this submarket.”

Regional outlook

Despite job diversification in the Greater Houston area, there still are not enough new jobs to sustain the apartment construction boom throughout the region, said Patrick Jankowski, senior vice president of research for the Greater Houston Partnership.

The Greater Houston area created 23,300 jobs in 2015, and projections for 2016 show 21,900 jobs will be added, Jankowski said. In comparison, an average of more than 89,000 jobs were added per year from 2011-14.

“We have—what looks like—a three-year supply [of apartments] without the job growth to sustain the [Greater Houston area] market,” Jankowski said. “There are going to be too many units coming online.”

McClenny said he expects a slowdown in apartment development throughout the Greater Houston area once ongoing projects are complete.

“It is more about the investors saying that they don’t want to deploy their capital in this kind of market,” McClenny said.

Local outlook

While multifamily development has been slower in Cy-Fair than it has been metrowide, the area is still expected to increase its supply of apartments over the next decade.

More than 16,000 apartments will be added within the district’s boundaries over the next 10 years, according to a 2015 study of Cy-Fair ISD performed by demographics firm Population and Survey Analysts.

Much of the growth is projected in master-planned communities, such as Bridgeland, Elyson and Towne Lake, which will add nearly 5,000 combined apartment units over the next 10 years.

Multifamily developers, such as Allen Harrison Co. still see potential in the Cy-Fair market, Marketing Manager Jen Merrihew said. With its proximity to the employment centers and modern amenities, the slumping Houston economy has not greatly diminished multifamily demand in the area, she said.   

Allen Harrison Co. developed two Class A apartment complexes—which tend to have more amenities—in Cy-Fair: 91Fifty and Fairfield Ranch.

“It is a conversation people in the company are always having, but 91Fifty is doing well,” Merrihew said. “Cy-Fair hasn’t seen as much of a change in demand [as it has metrowide], so we’re still moving forward.”

Today, only one multifamily complex is under construction and only three have been proposed in the area, according to Apartment Data Services.  However, competition between older and newer Class A apartment complexes has grown in the area, McClenny said.

Lower than normal occupancy rates are causing some complexes to consider concessions, McClenny said. In March, the occupancy rates for Class A apartments in the Bear Creek/Copperfield/Fairfield submarket was 79 percent. Stable Class A properties—in operation more than 13 months—have an 89 percent occupancy rate while lease-up complexes—in operation less than 13 months—are 52 percent occupied.

“That’s a little weak,” McClenny said. “Ninety percent is the threshold where the property has more pricing power that sticks. Once they’re on it or below it, they tend to discount and offer concessions.”

In the Jersey Village/Cypress submarket, which is older and more built-out, there are no lease-up properties or complexes under construction. However, there are three proposed for construction. Occupancy in the
60 communities in this submarket has dropped by more than 2 percent over the last year, while rental rates have also decreased over the past year.

“They don’t have any new [complexes] yet their pricing is going down,” McClenny said. “This is a market where it doesn’t have any competitive pressures; thank God because it would probably make it worse. For whatever reasons, the occupancy is drifting down so the rents as well are drifting down.”

Attracting renters

With new complexes on the horizon  and less demand for those vacant apartments, many developers may resort to different tactics to attract renters, Jankowski said. Complexes seeking to attract renters will likely offer concessions, such as one to two months free rent for a 12-month lease and not having to pay a security deposit, he said.

“You should really be able to get a good deal on an apartment in the next two years,” Jankowski said. “When [a potential renter] walks into the office, they just need to say, ‘What kind of deal can you give me?’ If they say nothing, I’d advise them to walk out.”

Merrihew said she does not expect to see heavy concessions at the two Allen Harrison apartment complexes in Cy-Fair, however.

“We always have rotating concessions, but [91fifty and Fairfield Ranch] have been having a great response from the community,” Merrihew said.

Cyrus Bahrami, a managing partner with Alliance Residential Houston, said  despite the slowdown in the economy and job growth, the millennial generation has a desire to live in apartments, not single-family homes.

“I think the American dream has been pushed out for my generation,” Bahrami said. “Millennials are a big part of this—they’re apartment-driven.”