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AUSTIN, TX-Healthy economic fundamentals compared to the rest of the country have driven developers to the capital city, prompting increased multifamily development. Close to 5,000 units have come on line so far this year, with 12,000 to 14,000 units still under construction and anticipated to be completed in 18 months to two years.

At this point, researchers with third-quarter numbers say occupancies are still in good shape. Houston-based O’Connor & Associates’ October report puts occupancy at 90.6% in the 147,501-unit inventory. Marcus & Millichap Real Estate Investment Services’ report pegs occupancy at 92.6% while just-released statistics from M/PF YieldStar, based in Carrollton, TX, shows 94.2% occupancy for 161,800 units.

Greg Willett, vice president for M/PF YieldStar, says he’s worried about what lies ahead. Deliveries are accelerating, he points out. There have been 4,837 units already delivered this year and 13,366 units are under construction. Even with continued job growth, he says excess inventory could reduce overall occupancy to 91% in 2009. O’Connor & Associates shows 12,134 units are rising.

Patton Jones, sales director for Apartment Realty Advisors in Austin, admits there is a lot of construction, but points out there are two sides to the story. “Deals that were permitted and financed one year ago are currently under construction. That accounts for about 14,000 conventional units added to the inventory over the next to years,” he tells GlobeSt.com. With financing drying up and construction loans all but impossible to get, once those units come on line “then we drop off a cliff,” he says. “Not much more is coming after that.”

Steve Hollingsworth, associate in Austin for Marcus & Millichap, says that, in the short term, there could be a glut of multifamily product, particularly in the far north and far south areas where there aren’t many barriers to entry. “We’re overbuilt,” he says, “but in the long term, things will catch up.”

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