Amid Central Texas’ ongoing job and population growth, the Austin-area apartment market continued its upward climb last year. And experts say they don’t see a slowdown in sight, although tenants might feel some relief this year as the pace of rent growth is expected to slow.
Building on momentum from 2018, average rents across all unit sizes hit an all-time high of $1,363 a month as of the end of December, according to Austin-based Capitol Market Research, an Austin-based consulting firm that tracks apartment rents and occupancy rates in the five-county Austin metro area.
That average rent is a 5.7% increase over December 2018, when rents averaged $1,289 a month.
For one-bedroom apartments, the average rent was $1,198 a month as 2019 came to a close, said Charles Heimsath, president of Capitol Market Research. Rents for two-bedroom units averaged $1,495 a month.
The year-end rents are up from December 2018 averages of $1,128 a month for one-bedrooms and $1,421 a month for two-bedrooms.
Last year ended with the region’s apartments units 93.3% full. That’s up slightly from the 93.1% occupancy rate at the end of 2018.
Once again — for the fourth consecutive year — developers added more than 10,000 apartment units to the existing inventory, Heimsath said.
With occupancy holding at high levels, “it appears that the market is showing a sustainable ability to absorb annually more than twice as many units as were added per year in the last decade,” Heimsath said.
Although rents are expected to continue to rise this year, Heimsath and other experts are forecasting a slower pace of increase due to the number of new units being added.
More than 25,000 apartment units are under construction, with half of those likely to open this year, according to Capitol Market Research. That means it is possible that the Austin area this year will see the highest number of units ever completed in a 12-month period, Heimsath said, which could mean “a risk of a decline in occupancy and slower rent growth.”
“I don’t expect another year of 5% rent increases,” Heimsath said. “I think it will be closer to 3.5% due to the large increase in supply.”
Still, as long as the region’s job growth continues and unemployment remains low, “people will continue to move to the Austin area and lease apartments,” he said.
In another year-end report on the local market, Robin Davis with Austin Investor Interests, said that in the fourth quarter alone, more than 3,300 new apartments units were added, the highest number of new completions in more than three years.
“During the year, new starts and submittals hit historical highs and there is more activity waiting in the pipeline,” Davis wrote. There are about 28,580 units under construction among all property types, according to Davis. Another 27,800 units have entered the permitting process or are already approved and ready to break ground, she wrote.
“It remains to be seen how many of these will come to fruition, but the pipeline is unyielding and with more 56,000 units already underway or pending a start, there is certainly room for caution as Austin is well known for its boom/bust cycles,” Davis wrote.
But a couple of factors are working against an oversupply, she noted. First, the completion dates will be staggered. And secondly, with a low supply of existing housing inventory on the market, tenants will be left with fewer rental options of single-family homes, Davis said.
‘Busting at the seams’
Nancy Horkey said she almost couldn’t believe her eyes when she went into city of Austin offices in 2017 to submit plans for a 288-unit apartment complex. She was accompanied by the project’s architect, Houston-based Angelica Batac with InvestWell Architects, who is among the team of six women involved in the project.
“In our very first meeting, we looked over and saw just a huge box with plans upon plans rolled up in there. I kicked Angelica under the table. We had to make sure ours didn’t get lost in there,” said Horkey, an apartment developer based in Montgomery, where she developed a 144-unit apartment complex on Lake Conroe, and is starting its second phase.
The $47 million Austin project, called the Mont Apartments, is under construction on 9.6-acres at Montopolis Drive and Grove Boulevard, in rapidly redeveloping Southeast Austin. Leasing is expected to begin this spring, and the first tenants could move into their units in August.
Horkey said rents are expected to range from $1,400 a month to $2,100 a month. Rent projections were 30% to 33% lower when the Mont was first being planned, she said.
Horkey said Austin “is not like any other market in the U.S.”
“It’s busting at the seams, and the (city’s) planning, transportation, environmental, energy, water/sewer and parks departments are all overloaded,” she said. “The market is just nuts.”
Castle Lanterra Properties, a New York-based national real estate investment firm, also is bullish on the Austin apartment market, which it says is one of the strongest in the nation.
“We believe in Austin over the long term,” said Elie Rieder, CEO of Castle Lanterra Properties, which owns and manages more than 7,000 apartment units across 25 properties nationwide.
In addition to Central Texas’ population influx, especially of millennials who favor renting to owning, Rieder cited the city’s “dynamic economy fueled by tech companies, and a relatively low cost of living and doing business—all with no indication that these factors will change in the near future.”
Castle Lanterra recently sold its 350-unit Villas Tech Ridge apartment complex in Pflugerville to New York Life. After purchasing the property in February 2016, Castle Lanterra updated the complex to compete with surrounding newly built and renovated apartment communities.
“We ultimately were able to capitalize on the strong investor interest and were able to exit some of our investments several years ahead of schedule while meeting our projected sales price,” Rieder said.
Cindi Reed, southwest regional manager for ApartmentData.com, a marketing and data services company for the multifamily industry, said the Pflugerville/Tech Ridge submarket, along with Cedar Park, Leander and the East Riverside corridor, are among the areas seeing the most apartment construction.
“I don’t see things slowing down in Austin as our construction continues to boom,” Reed said. “Job growth remains high so I don’t anticipate (leasing activity) to slow down. With all of the new deliveries on the way in 2020 we might begin to see rental concessions in certain pockets of the city grow, which is a good thing for the renter.”
Natalie Young, a real estate agent and manager with A+ Apartment Locating in Austin, said that more moderately priced apartments — less than $950 for a one-bedroom unit and less than $1,200 for a two-bedroom — are becoming harder to find.
We have noticed an increase in rates sooner this year than in previous years,” Young said. “While we expect the rent to increase as we approach summer, we’ve already started seeing the rates climb in early 2020.”
Jennifer Galland, who recently got a new job working at Google, has seen just how quickly rents can climb. She said she will be moving into a one-bedroom unit at the Folio Apartments in Northeast Austin in April.
When she first looked at the unit, the rent was $1,203 per month, which fit with her budget. But she decided to take about a week to think about it and look around a little more, “and by the time I was ready to apply rent had skyrocketed to $1,314 per month,” she said. “I called the apartment manager but there was nothing he could do, since they use a program that prices them based on how many units they are renting at a given time… I still applied and was approved for move in.”
Sam Radbil, senior communications manager at Abodo, an apartment-search site, said that with slower rent growth forecast, “renters will find a more stable market throughout the year.”
“That said, as home prices remain at ridiculously high levels, people are going to be renting for longer than usual,” Radbil said. “This will drive prices and demand up as well. Overall, with the inability of many residents to afford homes and luxury apartment units driving up (rents), Austin renters will likely not see a decline in price in 2020.”