Strong Economy Propels Lubbock Multifamily Market Despite Uptick in Concessions
It’s an exciting time to be living in Lubbock, Texas. The amazing smells of Evie Mae’s Beef Ribs fill the air. McPherson, llano Estacado and English Wineries are producing gold medal wines, on point with anywhere in the country.
The Texas Tech men’s basketball team was 30 seconds away from a national championship; the men’s track team won the NCAA Championship; and the Red Raiders’ Meat Judging Team continued its dominant reign.
Winning has infected the community culture, translating into a strong local economy. Things are great for the local consumer, but how is that playing out for multifamily investors?
Here, the message is mixed. We will begin by discussing the Lubbock economy as a whole, then the key numbers for the Lubbock multifamily market, followed by a general discussion.
The Lubbock economy continues to perform at record levels. Per the Bureau of Labor Statistics, the city’s unemployment rate in June was 3.2 percent. As amazing as this number is, it actually represents an increase from the unemployment experienced in the two previous months.
Over the last 12 months, the Lubbock economy added an estimated 2,000 new jobs. Per the Lubbock National Bank Economic Report, some of the biggest points of economic growth, as measured on a year-to-date basis, include construction permits (up 42.4 percent from 2018) and hotel/motel spending (up 13.6 percent from 2018).
These numbers have pushed retail spending up by about 3.3 percent and led to a 9.8 percent increase from 2018 in airport enplanements. To those ends, the general economy is strong.
Multifamily Data Points
What does a strong local economy mean for multifamily investors that are either active in or targeting the Lubbock market?
From ALN Data for both June and July of 2019, the occupancy rate for the multifamily sector, which does not include student housing or other sub-types of residential properties, has hovered around 88.6 percent. This figure represents a reduction of 1.2 percent from 2018.
This same report shows an increase in both asking rent (about $778 per month on average), and effective rent (roughly $769 per month) of 3.4 percent versus last year. These are some of the positive indicators.
However, concessions are being offered at approximately 21 percent of the market’s properties, and the average concession package of 5.6 percent represents an annual change of negative 3.5 percent from 2018. Thus, concessions continue to be an issue.
Concessions are a factor of the substantial amount of new product that has been delivered to the market. In the 12-month period ending on July 31, 722 new units were delivered. This has continued a trend of construction in both the conventional and affordable/tax credit space, leading to a slight dip to the occupancy levels, coupled with a rise in concessions offered.
More than other cities in West Texas, Lubbock has a diverse economy. There is a strong health industry, as well as Texas Tech University, Wayland Baptist University and South Plains Junior College, which are all experiencing growth.
The banking system has several strong regional players based in Lubbock in addition to strong cotton/agriculture and oil and gas segments. The growth in several sectors has facilitated growth in people moving to the area, thus increasing the pool of renters.
Lubbock continues to offer a strong business climate with a low regulatory atmosphere, as well as a workforce that pulls from Eastern New Mexico, the Texas Panhandle and Texas Tech graduates who are staying in the area.
Even with a flattening occupancy rate, rents in many submarkets continue to show growth. That said, there are some mixed messages surrounding the market via the aforementioned supply additions that have led to a greater volume of concessions. Overall, the multifamily sector could be described as steady, but the strong local economy makes this a market to watch.
— By Carl Pankratz, vice president of acquisitions, Exponential Property Group. This article first appeared in the September 2019 issue of Texas Real Estate Business magazine.