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Houston’s ranking rises on list of best real estate markets

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Perceptions of Houston are improving among real estate investors, but the nation’s fourth biggest city still trails other Texas metropolitan areas in investors’ outlook for local real estate markets next year, according to a closely-watched national survey of investors.

The annual report — developed by Urban Land Institute, a nonprofit real estate research group in Washington, and the global consultancy PwC —  surveyed 2,000 real estate experts and professionals about expectations for the year ahead, asking them to rate their overall sentiments about specific markets.

Dallas led the Texas metropolitan areas in terms of overall real estate prospects, ranking No.2 on the national list behind Nashville, and ahead of Atlanta (No. 3), Austin (No. 4) and San Antonio (No. 12).

Houston ranked 14th, but investors’ expectations for the region’s real estate prospects have vastly improved, the survey suggests. Two years ago, at the height of the pandemic and in the wake of the oil market crash, Houston ranked No. 52 in the same survey, then leapfrogged to No. 24 last year..

In terms of prospects for the homebuilding industry, Houston trailed San Antonio (which ranked as the No. 1 nationally as the best market for homebuilding next year), Austin ( No. 4) and Dallas-Fort Worth ( No.6). 

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The survey suggests, however,  investors are still taking a more positive view of  Houston’s homebuilding market. Houston ranked No.8 nationally this year — compared to ranking No. 11 last year and No. 28 in 2020.

Houston’s investment prospects were likely boosted by elevated oil prices, but the region has benefited from a broader, pandemic-induced migration boom that has cast a favorable light over the Sun Belt. Strong population and job growth drive growth in real estate markets, attracting investors to Houston and other metropolitan areas in the South. 

Houston, meanwhile, remains relatively affordable compared to other major metros — despite rising home prices, mortgage rates and rents —  and real estate investors expect that to continue to attract more people to the metro area,  said Justin Levine, chairman of Urban Land Institute Houston and chief investment officer at the Houston real estate firm Levcor.

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“Houston’s biggest competitive advantage has been its affordability and its ability to provide a good standard of living for people that move here,” Levine said. “As long as we continue to provide that, I think the city will still be competitive and continue to attract people and employers.”

The report placed Houston among a handful of cities, including Boulder, Atlanta and Dallas, where emerging pockets of life sciences clusters could attract real estate investments,  Local  projects such as  Hines’ Levit Green and the Texas Medical Center’s TMC3 project are driving more real estate activity here as investments office space retreats.

“We’re making that transition into new health care and life sciences cluster here that typically you used to only find in Boston and California,” Levine said, “and I think that was a big factor (in Houston’s improved outlook).”

Levine noted that real estate investors are wary of a potential recession  and rising interests that could make doing deals tougher.

“A lot of investors are in a ‘wait and see’ mode. Because the Fed keeps raising rates, people are having a hard time pricing real estate,”  Levine said. “But I do think there are asset classes that are getting a good volume of deal including multifamily, industrial and retail.”

Nationally, Urban Land Institute leaders said real estate investors are taking a longer-term look at investments as they prepare for a potential recession.

 “Although real estate capital markets are constricting, they are still open for business, investors are still buying high-quality properties, lenders will continue to lend, and companies should move forward with cautious optimism,” Byron Carlock, US real estate leader for PwC, said in a statement. 



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