August 18, 2025

Multifamily Construction Pipeline Shrinks in Houston, Signaling Easing Supply Pressures

Q2 2025

Development activity has slowed significantly in Houston so far in 2025, after a combined 47,500 multifamily units came online in 2023 and 2024. During the first half of this year, only 6,837 units have come online; deliveries slowed during the second quarter and are expected to continue to decline in the second half. The market has continued to absorb inventory at a strong pace, limiting vacancy increases. Year over year through the second quarter, vacancy rose by just 30 basis points, following steeper increases in earlier periods. Net absorption has remained steady, with move-ins totaling more than 9,700 units during the past six months, slightly above the trailing 10-year average for the first half of the year. Consistent renter demand has supported modest rent growth, with asking rents advancing nearly every quarter during the past two years. Rent gains have been strongest in southeast Houston, with year-over-year increases of 4.0% in Galveston County and 3.4% in the Clear Lake/NASA submarket.

While sales activity continues to lag traditional trends, the gap has narrowed in recent periods. Sales velocity for the first half of 2025 is down 37% compared to the region’s trailing 10-year average, improving from a 53% lag at this point in 2024. Investment activity in 1990s-vintage assets has accelerated, accounting for 20% of the sales to this point in the year, the largest share in the region, compared to just 5% over the past five years. Despite this focus on older assets, demand for new construction remains strong, with over 15% of deals involving properties built since 2020, up from 12% in 2024. Cap rates have compressed in recent months due to the uptick in top-tier sales. Cap rates averaged 5.6% during the second quarter, ranging between 4.8% and 6.6%. During the first three months of the year, cap rates averaged roughly 6.5%.

Looking ahead

Projects totaling 12,000 units are forecast to come online in 2025, a return to historical averages after peak levels of unit completions were recorded in each of the past two years. With fewer units delivering, the vacancy rate is projected to improve through the end of the year. Beyond the next six months, inventory growth will likely dip well below traditional levels in 2026 and possibly into 2027. The construction pipeline is at its lowest total since early 2012, and just 3,000 units are currently scheduled for delivery in 2026, though this figure could rise as projects break ground in the second half of 2025. In the coming years, modest levels of supply growth should lead to the vacancy rate returning to the low-6% range while asking rents post steeper increases.

Following a solid first half, sales velocity in Houston’s multifamily investment market is expected to accelerate through year-end. Total sales for the full year are forecast to exceed levels recorded in each of the past two years, moving closer to historical norms. Houston’s early return to more traditional levels of supply growth positions the market ahead of many other metros and is likely to support investor interest. As the region continues to work through the inventory additions of the past two years, vacancy is expected to decline and rent growth to strengthen, further supporting the investment outlook.