The Austin apartment market is once again in growth mode, with September’s price and occupancy metrics well above pre-pandemic levels — but experts say momentum should slow in the coming months.
While the numbers are still trending upward, the rate at which prices are increasing has been slowing each month. This, paired with normal market seasonality, spells a likely winter cool down for the multifamily sector.
In September, metro-wide apartment occupancy was at 92.7%, according to ApartmentData.com. This occupancy rate is fairly standard for the area — over the last 10 years, the rate has hovered around there. What is significant, though, is that the market went from a decade low of 88.1% in 2020 to a healthy occupancy so rapidly.
“That’s a huge jump in a 12-month cycle,” said Cindi Reed, vice president of sales and business development for ApartmentData.com. “It’s not unusual to see a 1% jump, sometimes a 2% jump, but one this big is very very unusual.”
Rent, too, has increased precipitously, with Austin renters paying a whopping 25% more on average than a year ago, according to the data. In September, Austin’s median rent was $1,535, well above Houston’s rate of $1,162 and San Antonio’s of $1,120. The Dallas-Fort Worth metro prices are closer to Austin’s, with a median of $1,352.
Reed said she anticipates a 4%-5% increase in rents overall in 2022, but in class A apartments and new developments, she said that rents may go up as much as 8%.
Earlier this year, CBRE Group Inc. ranked Austin the top target market for commercial real estate investment. According to CBRE Vice Chairman Charles Cirar, the factors that make Austin particularly appealing to investors — apartment rent and occupancy growth, as well as a thriving single-family market — have remained solid since that ranking.
Cirar said new lease trade-outs, or the difference between what a new tenant pays in rent versus the previous tenant, have been staggering. He said a unit that was previously occupied at $1,000 a month is likely to lease for $1,250 — a 25% jump — given current market conditions.
“That’s a tremendous jump in rent, and we’re seeing those kinds of lease trade-outs,” Cirar said. He added that Austin’s “healthy” trade-out rate would be 3.5%-4.5%.
Cirar noted that these prices can actually mean lower turnover within apartment communities.
“People can’t move to get cheaper rent somewhere, so unless they’re moving for another reason they tend to stay put,” Cirar said.
Austin’s apartment market currently has a little more than 262,000 operating units. For comparison, there are nearly 800,000 units in Dallas-Fort Worth and nearly 700,000 in Houston. However, when accounting for overall population, Austin actually has highest number of apartments per capita out of all the major Texas metros.
Austin’s pipeline for new development is similarly robust, with almost 15,000 new units across 52 communities currently under construction, and another 36,818 proposed.
“If we have more available units, the rate of increase in rent may drop,” Reed said.
Reed pointed out a particularly important metric: the absorption rate, which shows how many units are occupied that were either vacant or not on the market before.
This year, the absorption rate is “off the charts.” In the past year, more than 21,000 units have been absorbed, helping account for the rapid uptick in occupancy.
Of course, all of this market activity is underpinned by rapid population growth. Austin grew faster than any other major U.S. metro every year from 2010 to 2020, according to U.S. Census Bureau data.
Despite the robust pipeline, the multifamily development market has not been immune to the labor and supply challenges brought on by the pandemic. Municipalities throughout Central Texas struggle to keep up with the wave of new development, Cirar said.
“For a developer, it’s not an easy business,” Cirar said.
Reed said, however, that she thinks the apartment market will continue on its trajectory as supply chain issues start to lessen.
“Just as long as these builders are able to get the materials and the labor to continue this path and to build, all these properties we have under construction and proposed, then [the market will] be very healthy,” Reed said. “Let’s just hope that there’s nothing that’s going to slow any of that down.”
Publication: Austin Business Journal