AUSTIN-Much like a phoenix emerging from the ashes, the capital city's multifamily market has shaken off its poor showing from the early part of the decade. Recent reports from various sources demonstrate a "comeback kid" story, complete with stabilized occupancy rate, rental increases and few worries that more units will flood the market.
Marcus & Millichap Real Estate Investment Brokerage Co.'s research team anticipates the year will end with a 7.3% vacancy or a 30 basis point decrease from the year before. Meanwhile, numbers from the most recent RealFacts report for the Austin metro point to a slightly lower 4.7% vacancy in a market containing 99,583 units.
The good news is attributed to a good job market. The Marcus & Millichap report shows a 2.8% employment growth rate this year, meaning 19,800 jobs were added. Last year, 26,000 new jobs came online. "The weaknesses in the job market have been flushed out and things look good for Austin right now," says Todd Sherrer, an investment specialist with Marcus & Millichap.
With occupancy at equilibrium, rents are on the rise. The RealFacts report points to an average rent of $803 per month while the Marcus & Millichap research puts it at $792 per month with concessions and $718 per month for the effective rate.
Owners now are finding they can get away with slashing concessions. Teresa Lowery, principal with Colliers International Inc., tells GlobeSt.com that about one-third of the apartment complexes in the metro market are offering concessions. It is a 50% drop from just a couple of years ago.
"What I've seen for the past two to three years are properties offering concession-heavy rent, meaning one to two months free," Sherrer adds. "But, those are starting to burn off." Those that are offering concessions tend to focus on weeks rather than months, he adds.
But don't look for developers to flood into Austin hoping to plant new apartment buildings. Marcus & Millichap's team estimates 2,800 units will have delivered this year, expanding inventory by 2.1%.
It's no secret that Texas' capitol city has extraordinarily high barriers to entry. Construction costs, as elsewhere, are on the rise. Then, there's the move through the permitting process.
"You're looking at a two-year process before you can even break ground," Sherrer tells GlobeSt.com. "A lot of stuff being built now is the result of developers trying to time the market. They knew Austin would come back so they went ahead and put projects in the hopper."
Adds Lowery: "A lot of developers tend to shy away from the area because they don't have the patience to go through that lengthy a process. That alone will continue to govern the number of new development deals in Austin."
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