Class-B and C Apartments Get Their Turn To Shine

Historically, Class-A apartments have outperformed lower asset classes in Houston. But that's changing. New supply of Class-A product has priced many would-be tenants out of the market. Combined with the oil slump and oversupply issues, the Class-A market is softening. But good news: Class-B and C fundamentals are strong. Transwestern SVP Ed Cummins (pictured with his family) says the high-end west side has taken the hardest hit, but the rapidly growing east side will provide strength for the market ahead.

Transwestern's Rachel Alexander and Rachel Andrae broke down the numbers: Occupancy for both Class-B and C multifamily has been steadily climbing since 2010, reaching 93.6% at the close of 2015. However, with Class-B and C inventory tightening over the last several quarters, rents have increased 18% since December 2012. At year-end, Class-B product at apartment complexes such as The Huntington at Stonefield (pictured) was $932/unit and Class-C was $741/unit. Looking ahead through 2016, the Transwestern team expects Class-B and C product to thrive.

Meanwhile, Class-A product will likely struggle from oversupply. The Rachels tell us that since 2012, Class-A inventory has increased 45% to 149,000 units as developers worked quickly to get units on the ground to take advantage of rapid population growth and a high demand for new apartment communities.

However, this large influx of new supply across the metro has dropped occupancy a whopping 10.6% from its 2012 peak to 83% at year-end 2015. Class-A rents have also dropped 2% from a mid-year 2015 peak to $1,436/unit.