News Article

Going into 2006, we’re now starting to get a better understanding of how evacuees from Hurricanes Katrina and Rita are shaping conditions in apartment markets across the South region of the country. Demand in 4th quarter proved better than the typically weak seasonal norm, as evacuees continued to filter out of hotels and emergency housing into rental apartments. In turn, as occupancy firmed, operators began to reposition rents for new leases at higher levels.

Here’s a quick summary for some of the key markets showing some impact.

Houston: While Houston apartments normally suffer mild net move-outs during 4th quarter, nearly 3,500 additional units were absorbed in the October-December 2005 time frame. Since demand already was spiking in this metro even before the hurricane evacuees arrived, total absorption for calendar 2005 shot upward to some 43,100 units, by far the biggest demand performance anywhere in the nation. Operators of top-tier product, which was crammed completely full immediately after Hurricane Katrina, generally are reporting some move-outs among those residents now, as households are returning to Louisiana or opting for other Houston area housing choices. However, this loss at top-of-the-market communities is being more than countered by the pick up of additional evacuee residents in middle-tier and bottom-tier properties. Houston ended 2005 with overall occupancy right at the 94 percent mark, up 7 percentage points on a year-over-year basis. Rent increases late in 2005 pushed rates up nearly 4 percent over the year-end 2004 figure, measuring change on a same-store basis.

Dallas/Fort Worth and Atlanta: Applications for emergency assistance show that Dallas/Fort Worth and Atlanta were the two other key destinations for hurricane evacuees, though the raw numbers proved nowhere near the Houston total. Both areas avoided their typical seasonal move-outs from apartments late in 2005, though the total absorption volumes were pretty shallow at about 1,100 units in Atlanta and roughly 800 units in Dallas/Fort Worth. Atlanta’s year-end occupancy rate of just under 94 percent was up more than 2 points from the late 2004 figure, though the metro didn’t muster any rent growth. Dallas/Fort Worth saw occupancy climb nearly 3 points on an annual basis, but the overall rate still was weak at not quite 92 percent. D/FW’s yearly rent growth pace also was lackluster at less than 1 percent.

Birmingham and Memphis: While Birmingham and Memphis attracted far fewer evacuees than Houston, Dallas/Fort Worth or Atlanta, the number was large enough to radically transform apartment market conditions. Up about 2 points on a year-over-year basis, occupancy in Birmingham now is up to roughly 97 percent. Furthermore, this notably tight occupancy is allowing rents to soar, with preliminary figures for December showing an annual upturn near 10 percent. Memphis occupancy also improved by about 2 points during 2005, in this case bringing the year-end performance to the essentially full level of 95 percent. Effective rents jumped a notable 8 percent, according to preliminary data.

Economists and demographers now are predicting that as many as half of the evacuees could permanently relocate to the metros where they’ve taken shelter, and the likelihood of returning to former homes decreases as they find jobs and develop connections within new communities.