By Jack Stone, director of investment sales, Greysteel
“What do you have in El Paso?”
The country is over a year into the pandemic, and Greysteel is still receiving calls on a daily basis from groups asking just that. We sold thousands of units in El Paso over the two years leading up to COVID-19, and there’s no end in sight.
In fact, even in these uncertain times, demand seems to have grown. Attracted to the higher yields, strong tenant base and increasingly diversified economy, investors are coming to El Paso in droves.
Jack Stone, Greysteel
It’s no secret that the Texas multifamily market has been hot. Out-of-state groups were first drawn to markets like Dallas, Austin, Houston and San Antonio because they offered higher yields with fewer regulations than markets like New York and California.
But it was only a matter of time before even those cities, which are seeing with cap rates begin to compress 4 to 5 percent, got too hot. Investors subsequently began exploring other options and turned to cities like El Paso, where the fundamentals were strong and yields still attractive.
Demographic Advantages
El Paso’s multifamily market has always had a strong tenant base. New players in the market are usually surprised to learn that it’s the sixth-largest metro area in Texas and the 18th most populated city in the country.
A warm, inviting community with strong family units at the core of its demographics, El Paso is one of the safest cities in the country, contrary to the stigma that comes with being across the border from Juarez. While also being ranked one of the most affordable cities to live in, El Paso is generally considered a top place to raise a family — and a leading retirement destination as well.
The market is incredibly well-diversified, aided by a strong public and private sector. Being on the border of Texas, New Mexico and Mexico, it’s a large distribution hub, as plainly recognized by Amazon’s new fulfillment center on the city’s east side.
The inland port of El Paso actually accounts for 20 percent of Texas’ land port trade. Fort Bliss is the second-largest U.S. Army post in the nation and largest employer in town, generating more than $23.1 billion in annual economic impact.
Lastly, the University of Texas El Paso (UTEP) is home to more than 25,000 students, generating more than $1.4 billion in annual economic impact. This public-private mix allowed El Paso to weather the 2008 recession better than most other markets and will help the city recover from the global pandemic faster as well.
Our team remains bullish on El Paso, especially in the aftermath of the pandemic, for all of these reasons. In addition, El Paso also doesn’t have as dense of a population as many larger markets, with 2,500 people per square mile versus 3,645 in Dallas and 26,403 in New York. And in a post-pandemic world, there’s a certain appeal to living and working in less dense environments.
Other Indicators
Just prior to COVID-19, El Paso demonstrated strong renter demand, pushing vacancies below the national average for the first time in a decade. At the same time, the market’s pace of job growth trended above the national average.
The economy is already showing signs of a stable recovery. Just prior to the pandemic, El Paso had an employment level of 356,700, before eventually losing 71,000 jobs. But by early 2021, it rebounded with an employment level reaching over 367,000. And although rent in El Paso is well below the national index, its growth has held firm throughout the pandemic with the next couple of years predicting to reach 3 to 4 percent growth before leveling off at around 2 percent.
Given the strong fundamentals and quick comeback from the pandemic-driven recession, it’s no surprise that demand for multifamily product in El Paso continues to be strong. The market is ripe for continued growth and transaction volume in the months to come.