The Austin area has seen the sixth biggest decline in apartment rents of any large market in the country since March, according to a prominent Central Texas real estate economist.
Only San Jose, San Francisco and Orange County in California and Palm Beach and Orlando in Florida saw bigger drops in average rent, said Sam Tenenbaum of CoStar Group Inc., which owns Apartments.com.
Other data points back up the trend. Apartment rents are down 3% in the Austin area since March 31, according to the latest report from ApartmentData.com. Class A apartments are the hardest hit, with a decline of 4.2% through June 12.
Rents are falling because of a slowdown in moves during the Covid-19 pandemic. And it’s happening at a time of year when rents are typically rising, as most moves happen during the summer months when children are out of school.
This decline in rent is largely coming in the form of specials that many property managers are having to offer renters to lease up newly built units.
Class A apartment rent in the Austin area fell by $71 since the end of March, said Cindi Reed, director of business development at ApartmentData.com. This is because there are nearly 10,000 class A units in lease up right now — on average about 33% of them are leased.
“These owners are trying to get their permanent financing on these properties within a year of opening, so clearly this is creating some competitive environments out there,” Reed said.
A stabilized class A property is leasing at $1.92 per foot on average, according to ApartmentData.com, but one in lease up is leasing at $1.66 per square foot.
Additionally, nearly 3,000 class B units are also going through lease up. They are only 23% occupied, Reed said. Class B rents have fallen by 2.5% or $32 since March.
Downtown and The Arboretum/The Domain submarkets are seeing the biggest occupancy and rent decreases right now, she said. She speculated this could be because many short-term rentals were vacated during the pandemic. Also, there are many new units opening in near The Arboretum and The Domain.
Occupancy in the downtown, South Congress Avenue and Barton Springs Road area is down 5.6% over the last three months, according to the latest data from ApartmentData.com. In the areas around St. Edward’s University and South Lamar Boulevard areas, occupancy is down 6.5% in the last three months.
Class C and D units gained some ground in the first half of June with rents starting to tick back up, Reed said. She expected that was because much of the hospitality industry is going back to work.
Tenenbaum said there is some encouraging news for developers and owners, as Apartments.com data is showing that the rent declines have flattened in the last couple of weeks.
But Reed said it is too early to know what the impact of the decline in rents and rise in occupancy is going to be long-term. It will depend on how fast it takes the economy to recover, she said.
Tenenbaum said there is a lot of uncertainty right now and a decline in rents “adds another layer of risk to developers who are considering whether or not to go forward with their next project.”
Slow lease up and declining rents could cost developers money, he said.
Publication: Austin Business Journal