After several years of swiftly rising rents, Austin-area apartment dwellers are about to get some relief this year, as thousands of new units enter the market and ease the metro area’s demand crunch.
More than 10,000 apartment units opened in the metro area last year, and another 8,000 or more units are expected to enter the market this year, according Charles Heimsath, president of Austin-based real estate consulting firm Capitol Market Research.
The boom in apartment supply dropped the area’s occupancy rate to 94 percent in the last half of 2014 — the lowest occupancy level in more than three years, and nearly 4 percent below the recent high of 97.8 percent in June 2012.
The 10,000 new units added last year in the region, which stretches from Georgetown to San Marcos, marked the largest increase Heimsath has recorded since he began tracking the numbers in 1991. The influx expands the region’s apartment inventory by 6 percent, to 180,280 units in all.
With all those new units entering the market, supply is catching up to demand. And that means apartment rents are stabilizing after rising rapidly — sometimes as much as 7 percent per year — from 2010 through 2013. The average rent in the metro area was $1,107 a month in December — an all-time high, but an increase of only $8 from the average rent for June, Heimsath said.
“That’s virtually unchanged,” Heimsath said. “You can clearly see that the rapid pace of increase has slowed to almost nothing.”
The year-end decrease in occupancy was due to a decline in leasing in the second half of 2014 as the metro area’s pace of job and population growth — while still strong — slowed a bit, Heimsath said.
In general, Heimsath said, newer apartment projects in Central Austin — between U.S. 183 and Ben White Boulevard — fared better than suburban properties, with the exception of far Northwest Austin, where employers including Apple Inc. are expanding.
Heimsath projects that in 2015, rents will increase at a slower pace than the 4 percent they grew in 2014.
“I don’t see citywide growth in rents at all in 2015,” Heimsath said, although he does think parts of the region seeing strong job growth and “an appropriate amount of supply” will continue to see some rent increases. Heimsath expects to see continued rent growth in Northwest and Central Austin — which includes downtown — through the end of the year.
However, research firm Marcus & Millichap predicts Austin will see apartment rents rise 4.5 percent to an average of $1,142 per month. Marcus & Millichap cites the region’s above-average job growth, population growth and increased hiring in the tech sector, which it said will support “outsized expansion in Austin’s prime renter age cohort, which this year is forecast to grow at a rate five times the U.S. average.”
In some areas of Austin — such as along South Lamar Boulevard — the hundreds of new units are prompting landlords to offer rent discounts due to that heightened competition.
At Cielo South Lamar, a new complex with 327 apartment units and 30 townhouses for rent, the developers anticipated offering concessions and budgeted for one month’s free rent, said Kent Collins with Centro Development, which partnered in the project with Cypress Real Estate. Currently, rents at Cielo South Lamar start at $1,056 a month for an efficiency; $1,370 for a one-bedroom; $1,800 for a two-bedroom; and $2,500 a month for a townhome.
Collins said the project is exceeding expectations.
“We projected moderate lease-up concessions because the prudent decision is always to assume that in new multifamily construction,” he said. “The last year of no concessions in apartment lease-ups is an anomaly.”
Although many new properties are offering concessions, such specials are typical during the initial lease-up phase of a project, said Brett Denton, a local apartment developer with Ardent Residential.
They serve “as a way to reward new residents for tolerating the noise and inconvenience of construction required to complete properties and important amenities such as club rooms and pools,” Denton said. “These concessions typically subside as projects are completed, especially if job growth remains strong.”
Jess Rodriguez, manager for Apartment Specialists’ South Austin location, said some landlords are getting creative with concessions.
She cited one project just north of downtown that is offering one month’s free rent if a prospective renter signs a lease within 48 hours of looking. But if they sign within 24 hours, they can also get a credit on their application free, a waived administrative fee and a choice of a either a $300 gift card, three hours paid for a mover, or a free iPad Mini.
“I’ve had clients who are finally starting to be happy again with the deals they’re getting,” Rodriguez said.
Job growth is the most important factor for a healthy apartment market, Denton said. Last year, the Austin region created more than 35,000 jobs, and local economist Angelos Angelou predicts the region will add nearly 70,000 new jobs during 2015 and 2016.
Robin Davis, manager of Austin Investor Interests, which researches the local apartment market, said it has been one of the strongest nationwide “for a full five years, reaching historical heights in rent, occupancy and overall growth.”
However, she noted a shift could be in store.
“These are likely the last moments of trendsetting hurrahs until the market absorbs the upcoming development that, at present, will bring over 12,000 conventional units and almost 1,800 affordable/student housing units over the next 12 months,” Davis said.
Among those looking for an apartment in Austin is Rob Howard, who is transferring here to be director of operations for a new Austin office for Brooksource, an Indianapolis-based IT staffing firm.
Howard, who currently lives in Milwaukee, said his rent here won’t be cheap. When he moves in March into the new Lamar Union mixed-use project on South Lamar, he’ll be paying $1,930 a month for a one-bedroom unit with 800 square feet, with two months free rent tossed in.
While hunting for a place, “the prices were initially quoted as similar to Milwaukee, but it became clear that the Austin marketplace is incredibly competitive, which brings rising costs,” Howard said. “It’s a ‘buy now or forever miss out’ type of setting.”
In East Austin, LeAnn Mueller, 42, and Alison Clem, 34, owners of the la Barbecue food trailer in East Austin, moved last month into the new Corazon apartment development on East Fifth Street. Clem said they are happily settled into their new two-bedroom unit, which they rent for about $2,5000. It has a large balcony, just over 1,000 square feet of space and “spectacular views,” Clem said.
“We really love the east side,” Clem said, noting they are near many of their favorite spots, including Whisler’s, Shangri-La and Thai-Kun. Clem is also excited about the new retail that will be coming to Corazon, including Spartan Pizza and a grocery store.
“We love this place,” Clem said. “It definitely feels like home.”