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

The Greater Houston region 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, am average of more than 89,000 jobs were added per year, said Bruce McClenny, president and CEO of Apartment Data Services LLC However, despite significant declines in job creation, apartment developers have an estimated 30,000 units under construction in the Greater Houston area, including more than 900 in the Tomball area. Watermark at Spring Cypress, Everlee Apartments and Waterford Trails are all expected to open later this year in close proximity to Hwy. 249 and the Grand Parkway.

“One of the fundamental underwriting criteria [as a developer] was to locate a market that is in the crosshairs of significant growth,” said Damon Palermo, partner with local development group 2978 Panormus LP.

Regional outlookWork on multifamily projects continues despite flooding, economic downturn

Despite the job diversification in the Greater Houston area, there still are not enough new jobs to sustain the recent apartment construction boom throughout the region, Jankowski said.

“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.”

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.

Flooding effects

In addition to the decline in job growth, the significant flooding that rocked the Greater Houston area in mid-April will likely change the landscape of the multifamily rental market, McClenny said.

In March, occupancy rates for apartments in the Tomball and Spring areas were close to 84 percent, with an increase of 16 percent over the last three months. That number will likely change once data can be collected following the flood damage.

“What the apartment market was going through then is vastly different from what we’ll see in the coming weeks,” McClenny said.

Areas of Tomball and Magnolia saw over 12 inches of rainfall in less than 24 hours on April 17 and 18, according to data from the Harris County Flood Warning System.

In many areas of Tomball, particularly around Spring Creek, Hufsmith-Korhville Road and Hwy. 249, the water levels were up to six times higher than they were following the flooding from May of last year.

“There’s no telling how much damage has been done,” McClenny said. “There’s going to be a lot of damage to single-family homes, and there’s probably a lot of damaged apartment units on the first floors for sure. It’s really going to play havoc on the supply because there’s no way to determine how many [vacant] units we have now.”

McClenny said a similar flood event, Tropical Storm Allison, caused damage to more than 20,000 apartment units in the Greater Houston area in 2001.

However, even with all the damaged units and temporary evacuations, apartments could still see an unexpected spike in the number of prospective residents in the next few months.

“During a flood event, you have a lot of temporary workers coming [who] could stay for up to several months,” he said. “Contractors that are coming in to repair all these places and insurance adjusters will be coming [to assess damage], so they all need places to stay. Hotels and apartments get a huge rush of people [who] are ready to move in right now.”

Attracting renters

In order to increase the occupancy rates in new complexes, apartment developers are adding incentives to bring in new residents.

Cyrus Bahrami, a managing partner with Alliance Residential Houston, spoke at the Houston Apartment Association’s annual luncheon Jan. 26 and said concessions for new renters are often higher in areas with a large supply of apartment units.

“We were offering concessions, like  one month free rent,” Bahrami said. “Now, we’re moving to two months of free rent.”

In Tomball, the recently opened Landmark Grand Champion apartment complex on Boudreaux Road near the Grand Parkway is offering special pricing for new renters as a way  to stay competitive in the market.

Since opening in October, the complex has offered one month of free rent with application approval, and an additional $500 credit toward the second month if a resident signs a lease on the same day.

[That’s] just to get some immediate occupancy,” Property Manager Tracey Browning said. “We opened in the slower leasing season—usually fall is a little bit slower than spring and summertime. It’s picking up a lot, and as of now we’re occupied at almost 31 percent.”

Bahrami 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, 35, said. “Milennials are a big part of this—they’re apartment-driven.”

Peck Station update

For many developers in Tomball and Magnolia, flooding and economic uncertainty have not been cause for pulling out of development agreements, but they can spell delays for big projects, Palermo said. One example of this is the long-awaited Peck Station development in Tomball.

Work on multifamily projects continues despite flooding, economic downturn Greater Tomball area continues to attract developers, potential renters as Houston job market struggles to recover[/caption]

Located near the intersection of FM 2920 and FM 2978, the 34.5-acre land tract for the mixed-use development—which will feature apartments— was purchased in 2013 by 2978 Panormus LP. It is tentatively scheduled to break ground in mid-to-late 2016.

Palermo said the project has encountered delays due to construction lag, the decline in oil prices and uncertainty surrounding the nearby Baker Hughes Western Hemisphere Education Center campus. However, the firm is slated to begin construction on the project this summer, albeit on a slower timeline than originally expected.

“We know that this is a long-term investment,” Palermo said. “The market got in the way, but we’re still sticking to the plan. It just means that we’re slower and more methodical in how we spend money in order to keep things moving forward, but we fully intend to [break ground].”

When complete, Peck Station will feature space for retail, commercial offices, a hotel, entertainment venues and a 13.75-acre tract for multifamily residential space.

The project is designed to attract young families and young professionals looking for an area in which to live and work,
Palermo said.

Although there is not an apartment developer attached to build on the project, he said he believes many companies will reassess once some
of the activity surrounding the proposed merger between Baker Hughes and Halliburton settles.

“The future potential of that area is enormous—you just have to have that long-term perspective that exceeds six months,” he said. “You have to be patient and you have to believe in the fundamentals that brought you to that location in the first place.”