However, despite the significant decline in job creation, apartment developers have an estimated 30,000 new units under construction in the Greater Houston area—including more than 4,000 in The Woodlands/Conroe South submarket.
The Greater Houston area created 23,300 jobs in 2015, and projections for 2016 show 21,900 jobs will be added, according to Patrick Jankowski, senior vice president of research for the Greater Houston Partnership.
As a comparison, from 2011-14 an average of more than 89,000 jobs were added per year, said Bruce McClenny, president and CEO of Apartment Data Services LLC.
“We have—what looks like—a three-year supply [of apartments] without the job growth to sustain the market,” Jankowski said. “There are going to be too many units coming online for the job growth we’re going to have.”
Jankowski said despite the job diversification in Houston, which helps offset lost jobs in the oil and gas industry, there still are not enough new jobs to sustain the boon in apartment construction.
“The apartment industry has overbuilt,” Jankowski said. “They recognized the market signals too late. No one should start a new apartment complex for another year.”
Multifamily market woes
In and around The Woodlands area, new apartment complexes are facing leasing challenges while some multifamily projects are being postponed until the market trends upward again.
The Woodlands Development Company announced in February plans to halt development on Treviso at Waterway Square, a condominium high-rise project planned for Town Center.
“We’ve talked about it since 2006 and brought it to the market and, of course, we all know what’s happened to the market in the last couple of months,” said Alex Sutton, co-president of the Development Company. “We put pause on that. We haven’t given up and we haven’t stopped, but we are taking it off the market right now. We’ll bring it back as soon as things clear up.”
Apartment complexes are divided into two classes: stable—in operation more than 13 months—and lease-up—in operation less than 13 months. Of the 61 apartment complexes in The Woodlands/Conroe South submarket, five are considered lease-up. There are at least seven upcoming complexes around the border of The Woodlands that will open this year, according to Apartment Data Services.
“These [complexes] have been popping up because of the need in the market and knowing that the multifamily developments within the boundaries of The Woodlands are being developed by The Woodlands Development Company,” said Gil Staley, CEO of The Woodlands Area Economic Development Partnership. “Now we’re in a downturn in oil and gas, which could ultimately impact multifamily.”
Watermark at Harmony, a new luxury apartment complex near Rayford and Riley Fuzzel roads, is 53 percent leased after opening its first building last spring, Business Manager Leslie King said.
“There are a lot of new communities in The Woodlands area that are very similar in regard to the type of property and amenities that we all offer,” she said. “It’s a saturated market here. With oil prices being what they are, concessions have increased. I haven’t seen concessions like this in years.”
King said leasing for apartments typically picks up in March and slows down in August before the start of a new school year, meaning complexes have to market the properties and close new prospects during that time frame.
“Our marketing dollars are a lot every month, but that’s to be expected when you’re a new construction lease-up,” she said. “I do think the Grand Parkway will help us because everybody will want to live by it since you can jump on and get anywhere in 10 minutes.”
With many 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.
“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 rental office, they just need to say, ‘What kind of deal can you give me?’ If they say nothing, I’d advise [renters] to turn around and walk out.”
King said concessions can change daily or weekly but said at least a month of free rent is being given away on 13-month leases at her complex.
“It could be a month of free rent, or it could be a prepaid amount [off] that the owner approved that week,” she said.
Cyrus Bahrami, a managing partner with Alliance Residential Houston, spoke at the Houston Apartment Association’s annual luncheon Jan. 26 and said despite the new complexes, developers could take advantage of the situation.
“Let’s not overreact,” he said. “I like our chances with the number of millennials flowing to Houston.”
Bahrami, 35, 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.”
The opening of two new hospitals in The Woodlands by the second quarter of 2017—Houston Methodist The Woodlands Hospital and Texas Children’s Hospital—will bring 1,200 new jobs to the area.
“They will bring a much-needed shot to our employee numbers with those openings, and certainly multifamily will benefit from that as well in The Woodlands area,” Staley said.