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McAllen Multifamily Market Shows Positive Rent Growth Amid COVID-19

Devon-Place-Apartments-McAllen

A controlled pace of new deliveries has allowed the McAllen area’s multifamily market to achieve small but steady gains in rent and occupancy over the last couple years. Pictured is one of the market’s newest developments, the 120-unit Devon Place Apartments in the city of Mission that was completed in January.

By Brad Frisby, Associate, NAI Rio Grande Valley

The McAllen-Edinburg-Mission MSA’s multifamily market has posted positive rent growth for the first half of 2020, despite the outbreak of COVID-19 causing nationwide job losses and impacting landlords’ ability to push rents during much of that time.

The combined effect of a stimulus package for renters and pandemic legislation that bans evicting residents who cannot pay due to COVID-19-related job losses has largely kept occupancy rates steady throughout the first half of the year. Occupancy rates for Class B and C product rose to the mid-90s, but absorption at Class A properties has taken a small dip.   

Brad Frisby, NAI Rio Grande Valley

Brad Frisby, NAI Rio Grande Valley

As construction — and economic activity in general — resumes at a greater pace in the second half of the year, we expect new deliveries to come on line and bring the marketwide occupancy rate down slightly. As of May, the McAllen area had added about 500 new apartments to its supply, with an additional 700 or so set to be delivered by year’s end.   

The North McAllen, Edinburg and  Weslaco submarkets will receive the bulk of new deliveries this year.  Over half of the new units delivered will be through the Texas Department of Housing & Community Affairs’ 9 percent housing tax credit program.

Unique to the greater McAllen multifamily market are the four-plex communities.  These neighborhoods often compete with conventional apartment communities and should be factored into any analysis.  As of May 2020, roughly 400 units, or 80 percent of the new supply, has been four-plex units. We expect to see developers continue to target and deliver that category of product.

Should the market add more than 1,200 units by the end of the year, that would be a substantial increase in the total number of new year-over-year deliveries. These projects were already in progress prior to the pandemic; we expect deliveries to drop in 2021 as absorption catches up.

Most renters in the market qualify for some level of federal relief, and landlords have displayed flexibility with renters to keep their units occupied. Means of keeping renters in their units that we have seen include accepting deferred rental payments, converting to security deposits to rent payments or incentivizing renters with discounts if they pay on time.

As a result of the various local players and the federal government all acting in the greater interest of the market, the McAllen MSA closed the first quarter with 0.3 percent rent growth among new leases. Rent growth for renewed leases was considerably stronger at 4.5 percent. Overall asking rents across all multifamily product types are rising, and the value of concession packages being offered by landlords to renters is down 1.5 percent from 2019 levels.

Over the last several months, landlords have primarily focused on keeping tenants in place by offering various forms of relief alongside renewals. So while concessions are down, rent growth should still remain relatively stagnant through 2020 due to not only landlords offering relief, but also new deliveries.

In addition, the market has been bolstered by its traditional economic drivers, the majority of which fall into the category of essential services. Those have enabled many residents to keep working throughout the crisis. Government, healthcare and cross-border trade are the three primary industries that have remained largely operational during the pandemic and which have reduced the rate of job losses.

Prior to the pandemic, the growth of the McAllen area’s retail and restaurant scene had been one of the market’s most visible accomplishments, and one that residents and city officials were particularly proud of. The temporary and permanent losses of those jobs due to COVID-19 have played the biggest part in the market’s rising unemployment rate.

Ultimately, however, we expect the greater McAllen multifamily market to rebound steadily as a result of its crucial industries related to government, healthcare and manufacturing.

Recently renegotiated trade agreements and the prioritization of  manufacturing in the public health sector will further boost the uniquely located South Texas region. Healthcare facilities throughout the Rio Grande Valley have seen steady growth and add healthcare users with highly specialized practices, as well as more educational facilities to support the growing healthcare real estate market. We look for all of these industries to contribute to the McAllen multifamily market’s rebound and growth in coming months.

— This article originally appeared in the June issue of Texas Real Estate Business magazine. 

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