With Absorption Elevated, Multifamily Rents Push Higher in Houston

The Houston multifamily market benefitted from healthy renter demand in 2024, with absorption totals offsetting some, but not all, of the new development that came online during the course of the year. Net absorption reached approximately 16,600 units in 2024, up more than 70 percent from the 2023 total. The accelerating pace of renter demand allowed for the vacancy rate to remain within a tight range for all of 2024 and supported rent increases throughout the market. Construction has likely peaked; during the fourth quarter, developers delivered roughly 6,600 units to the market, bringing the total for the full year to more than 25,000 units. At the start of 2025, there were fewer than 17,200 units under construction, down 44 percent from the peak recorded in the first quarter of 2023. Deliveries should remain modest going forward, as multifamily permitting slowed considerably in 2024.

Multifamily investors in Houston responded to the operational gains made across the market in 2024 by increasing acquisition activity. Total sales during the final few months of the year reached their highest quarterly total since the fourth quarter of 2022. This fueled a 20 percent annual spike in sales velocity from 2023 to 2024, although transaction volume continues to lag long-term averages. The Southeast Houston and Northwest Houston submarkets traditionally account for a significant share of total transaction activity, a trend that repeated throughout the past year. The pace of sales in River Oaks surged in 2024, particularly during the second half of the year. While the bulk of the properties that sold in 2024 involved older vintages, investors targeting new, Class A construction found opportunities in the River Oaks area.   This submarket accounted for 40 percent of the Class A sales during 2024.

Looking ahead

Supply growth in the Houston multifamily market is forecast to retreat closer to historical levels in 2025, which should allow for a modest vacancy improvement and continued rent gains. Projects totaling only 12,000 units are slated to come online in the year ahead after more than 60,000 units were added to local inventories since the beginning of 2022. The Northwest Houston submarket will serve as an example of the larger development trend. Northwest Houston has been one of the most active submarkets in the country for new development since 2020, as inventory expanded by 24 percent. The submarket’s development pipeline has thinned however, with projects totaling roughly 600 units under construction at the end of 2024, down from 3,000 units one year ago.

The Houston multifamily investment market is expected to continue building on the momentum created in the closing months of 2024. Sales velocity is projected to accelerate, although total transaction volume in the coming year is not expected to return to past levels. Even during a period of heightened deliveries and below-trend employment growth, operators demonstrated they could achieve rent growth across all asset classes and submarkets. Future acquisitions may be underwritten more aggressively in response to the healthy rent increases posted in 2024 and anticipated for 2025, potentially bringing more buyers off the sidelines. While there have been challenges in the local investment market in recent periods, the region’s growing population, strong labor pool, and elevated renter demand will support investor sentiment in the next cycle.

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