Too Much Too Soon?
The oncoming wave of new multifamily product headed Austin‘s way, especially in the areas in and around downtown, will be a challenge for the metro to handle all at once. Undoubtedly, there will be short periods when the volume of additions in initial lease-up will soften apartment occupancy and slow the rent growth pace. In general, though, Austin’s robust economy and desirable lifestyle characteristics should produce the demand to absorb all of this new supply. Indeed, despite a few hiccups along the way, look for Austin’s apartment market to perform well and for the metro’s urban core to emerge as an example of downtown development done right for other cities to follow. Austin’s back–and it will stick around on the nation’s list of favored apartment markets for the foreseeable future.
Fast Facts
Considering Austin? Here’s what you need to know:
1 – Population: 1.4 million
2 – Occupancy: 96.7% (September)
3 – Median Age: 29.6 years
4 – Median Household Income: $50,484
5 – Average Rent: $768 (September)
6 – Unemployment: 4.2% (August)
Notable: More than 40 percent of Austin area residents age 25 and over hold a bachelor’s degree. Austin’s population grew 41 percent between 1995 and 2005. Initially known as Waterloo, Austin was renamed for Stephen F. Austin, one of the defenders of the Alamo, in 1839. The Texas Capitol building, erected in1888, is the largest of the nation’s state capitals. Austin is home to the biggest urban bat community in North America. During the spring and summer months, roughly 1 million Mexican free-tailed bats make the Congress Avenue Bridge in downtown Austin home.
– Joseph Clements (jclements @mpfyieldstar.com) is the managing editor at Dallas-based M/PF YieldStar.
Single Factor
House rentals could pose competition.
For the first time in more than a decade, the national homeownership rate is edging downward while the number of renter-occupied units is rising. This news certainly has apartment owners cheering, but they shouldn’t get over-confident. Single-family competition may still await: Single-family homes are a major player in the rental field with 10.5 million renters and are especially competitive with apartments for renters between the ages of 35 and 64, according to Torto Wheaton Research.
“There’s been an increase in renter households overall, and the expectation in the multifamily [industry] is it’s all going to multifamily. But that’s not necessarily the case,” says Gleb Nechayev, vice president and senior economist at Torto Wheaton Research. Single-family homes–rented and owned–are particularly a threat in markets with slowing home sales and continued new construction, plus an exodus of investors and speculators, he adds. But some apartment owners aren’t too concerned about this potential competition. “I see very little overlap between apartments and single-family rentals,” says Rick Cavenaugh, president of Fifield Cos., a Chicago-based developer. “The mindset of a person who wants to live in a single-family house is a different profile than most apartment dwellers.”
–Rachel Z. Azoff
Stat to Watch
Mixed Bag: With permits still high, rent growth could taper off.
When it comes to multifamily permits and starts, there’s good news and bad news. Good news is supply remains tight, with about 45,000 units breaking ground in the second quarter of 2006, 30 percent below the 10-year average, according to Marcus & Millichap’s quarterly report. That translates into an index reading of 120.15.
Not so good: Permits (which registered 104.01 on the index) continue to remain high, although they did drop slightly–2.4 percent–from the previous quarter, thanks to the nation’s economic recovery over the last two years. So while rent growth continues to rise, don’t expect it to last long, says Hessam Nadji, managing director of research services at Marcus & Millichap.
Analysts also expect a certain percentage of condos to revert to rentals as condo sales slow in overheated markets such as South Florida, San Diego, Las Vegas, and Phoenix. The condo effect is felt, however, primarily in the higher-end Class A market. “You won’t see much effect in the Class B and C markets,” Nadji says.
Nadji expects the surge in supply to hit the market in 2007 and 2008, which, when combined with slower national employment growth, will lower occupancy and slow rent increases.
–Nichola Zaklan