For the past few years, apartment dwellers in the Austin area have been hoping for some rent relief.
It seems to have arrived at last.
Slower job growth in Central Texas (read: lower demand), coupled with thousands of new apartments coming to market (read: increased supply), have caused apartment rents to plateau, according to experts and new reports.
In addition, the occupancy rate has slipped, dipping to 93.8 percent in December from 94.5 percent the prior December, according to Capitol Market Research, an Austin consulting firm that tracks the Central Texas apartment market.
“You can see renters gaining more leeway since some new apartment buildings in Austin are offering concessions for the first time (in years), things like a month of free rent or discounted security deposits,” said Crystal Chen, a data analyst with apartment rental website Zumper.
Last year ended with rents in the Austin market overall averaging $1,224 a month, up 2.8 percent from December 2015. From December 2014 to December 2015, however, the increase had been much higher, with rents soaring 7.5 percent, per Capitol Market Research.
“Throughout the market, particularly in areas with a lot of new deliveries, we’re beginning to see concessions,” said Charles Heimsath, president of Capitol Market Research. “Because of the concessions, rental rates have stabilized, which is good news for tenants.”
On a per square foot basis, rents averaged $1.39 a foot in December, the same as in June 2016, “so the rate of increase in rents has stopped,” Heimsath said.
Last year, developers brought 10,780 apartment units to market, the highest amount since 1991, when Heimsath started tracking the numbers. He said 8,770 units were leased, a net number and the second-highest level after 2015. However, the 2,100 additional units that came online last year over 2015 pushed down the occupancy rate to its current level of just under 94 percent, he said.
“Rents have stabilized, and I expect that rents will remain stable through 2017,” Heimsath said. “And because we’re growing jobs at a slower rate, it’s reasonable to assume that our occupancy is likely to drop a little bit more, because we will continue to deliver new units.”
Since Zumper started tracking rents in 100 U.S. cities last July, it said Austin has dropped from the 24th most expensive rental market to the 28th most expensive rental market currently.
In a separate report, AppFolio, a property management software company, ranked Austin among the five most affordable U.S. cities in which to rent, based on the percentage of monthly income spent on housing.
In Austin, renters on average spend 23 percent of their monthly income on housing, the survey found.
New York and Miami, whose residents pay more than half of their monthly income on housing, are the most rent burdened, AppFolio said.
AppFolio is forecasting rent costs will increase about 2 percent in the Austin metro for 2017, said Nat Kunes, vice president of product management at AppFolio. “That’s still healthy growth,” Kunes said. “It’s not like rents are dropping. They just aren’t growing as fast as they have been the last few years.”
Greg Willett, chief economist for RealPage, a rental housing technology and analytics firm based in Richardson, said Austin’s apartment market “lost considerable momentum” during the last half of 2016 as the area’s job growth cooled.
Though rents softened in Austin over the past year as supply caught up to demand, construction will slow after this year, said David Ott Jr., development partner with The Hanover Company. The Houston-based developer recently opened the first units at Hanover Lantana Hills, a 300-unit complex in Southwest Austin that is due to be completed this spring.
“After another big year of supply expected in 2017 — 7,000-plus units — apartment deliveries will taper off due to a lack of available re-development properties, construction costs at all-time highs, and construction loans becoming difficult to obtain,” Ott said.
After seeing more than 5,000 apartment units added in downtown Austin since 2012, apartment construction has slowed in the central business district and developers are betting on the suburbs, said CoStarGroup, a commercial real estate information company based in Washington, D.C. In Austin’s suburbs, 10,506 apartment units are under construction compared with 620 units underway downtown, CoStar said.
“The necessary income required for an apartment in downtown Austin is around $160,000, yet the median income for the market hovers around $40,000 – a large disparity, even with roommates,” CoStar said.
“Only so many people have the income to afford (downtown rents),” said Sam Tenenbaum, a market economist with CoStar.
Meanwhile, “the demand for new housing is strong in the suburbs, where developers aim for renters much closer to the market’s median income,” CoStar said. “Occupancy rates are already as high as 95.7 percent in San Marcos, and 93.8 percent in North and Northwest Austin.”
Most of the job growth is outside of downtown, Tenenbaum said, and mixed-use projects like the Domain in North Austin have brought the urban lifestyle to suburbia.
At the Mueller neighborhood in Northeast Austin, job growth is a catalyst for a surge of new development at the mixed-use project.
“Mueller is extremely busy these days with office, retail and residential activity, including three (apartment) communities all under construction… totaling nearly 760 units,” said Greg Weaver, executive vice president of Catellus Development Corp., the master developer of Mueller. “The demand for multifamily is exceptionally strong.”
Those three projects — Overture, Aldrich 51 and a new AMLI complex— will bring Mueller’s apartment count to 1,981 units. Mueller is expected to have about 3,600 apartment units once completed.
Weaver said that “the significant job growth at Mueller certainly contributes to the strength of the residential market.
“We estimate more than 4,800 people already work at Mueller and the upcoming Texas Mutual Insurance headquarters will bring another 700 employees,” Weaver said.
Catching a rent break
For many renters, a shot at lower rents — or concessions such as a first month of rent for free — comes as welcome news.
Allison Golden will be moving to Austin soon from Dallas with her boyfriend, Ace Tucker, 24. Golden said she feels fortunate to have found a unit at Bell South Lamar, where they will get one month of free rent.
She said their total savings will be $1,640 — $1,393 for the first month’s free rent, plus waived fees.
“I thought we would have to compromise on location if we wanted to stay within our budget but this deal made it easy for us to be in a prime location,” said Golden, who works in public relations.
Golden said she and Tucker wanted an apartment that was walking distance to shops and restaurants, and that was pet-friendly for Tucker’s chocolate Labrador, Ace. “I love the fact they have a very large dog park,” she said.
Just south of downtown, Alexandra Morgan, 27, and her boyfriend, Sharam Khosravipou, 28, recently moved into a second-floor unit in the new Water Marq complex on Riverside Drive, overlooking Lady Bird Lake. They got two months’ free rent, and will be paying just over $1,900 a month for a unit with 875 square feet.
“Moving from Chicago a little over a year ago I thought I had lived in apartments with luxury amenities, but then I saw the Water Marq,” said Morgan, an associate at Dimensional Fund Advisors in Austin. “The amenities were unlike any I have seen before.” They include a two-story gym with rowing machines, a yoga studio, a spin class room and an on-site fitness instructor. A big plus is an indoor dog-washing station, which will come in handy for Kevin, their cocker spaniel.
“We have been at the Water Marq for a little less than a month but we already feel at home,” Morgan said.
Austin-area average monthly apartment rents
Dec. 2016 — Dec. 2015
One-bedroom $1,070 — $1,037
Two-bedroom $1,354 — $1,325
Source: Capitol Market Research