Houston apartment market expected to struggle for next 5 years

The Mark at CityPlace apartments located in the Springwoods Village master-planned community Aug. 30, 2016, in Spring. The Mark at CityPlace apartments located in the Springwoods Village master-planned community Aug. 30, 2016, in Spring. Photo: James Nielsen, Houston Chronicle Photo: James Nielsen, Houston Chronicle Image 1 of / 36 Caption Close Houston apartment market expected to struggle for next 5 years 1 / 36 Back to Gallery

Houston developers are expected to build 27,600 apartments this year, a historical high and one that's coming at a time of slumping demand for rentals, a new report shows.

The highest concentrations of apartments have been and will continue to be in the Downtown/Montrose/River Oaks area, according to a third-quarter report from Marcus & Millichap, a commercial real estate firm.

Photo: James Nielsen, Staff The 40-story Market Square Tower will have 463 apartments. Studios...

"The apartment market for the next five years is going to look like the office market did in the '80s," said Patrick Jankowski, an economist at the Greater Houston Partnership said recently.

He noted downtown specifically. Thousands of units are under way in that market, exacerbating concerns about a multifamily glut. Plus, two major sources of tenants -- Exxon Mobil and Shell -- have left or will soon leave downtown.

"People just haven't appreciated the potential for how bad things can be in the luxury market," Jankowski said.

That's especially true considering the types of jobs being created.

Though there hasn't been a report of an overall decrease in employment, high-paying energy jobs have been gutted.

The sectors showing growth are in the education and health services sectors, along with retail and hospitality positions. Those types of employers typically generate demand for more affordably priced units.

Overall apartment vacancy will reach 7 percent by the end of the year and rents be up just slightly to $1,030 per month, the report shows.