In a good sign for Austin apartment dwellers, the metro area’s average apartment rental rates slowed their swift rise in the first half of the year as supply began to catch up with demand, industry experts say.
In the Austin region — spanning from Georgetown to San Marcos — rents averaged $1,246 a month as of June, an increase of 1.5 percent year-over-year, according to Charles Heimsath’s Capitol Market Research, which tracks the apartment market.
From 2011-2016, Austin-area apartment rents increased, on average, 5.8 percent a year, for a five-year increase of 32.5 percent, Heimsath said.In contrast, rents in the past 12 months have only increased by 1.4 percent on average, he said.
“Austin has achieved an ‘equilibrium’ market condition where the overall supply and demand are in balance,” Heimsath said. “This means that (in the Austin metro), rents are increasing at a very slow rate, if at all.”
The overall occupancy rate dipped slightly, averaging 93.3 percent across the metro.
Over the past six months, 4,136 apartment units came online, and a net of almost 2,400 units were leased, which caused the decline in occupancy, Heimsath said.
Robin Davis, owner of Austin Investor Interests, which also tracks the market, said the area’s apartment market remains “vibrant,” but said “growth has slowed to a more predictable pace.”
Heimsath said he expects the slower rent-growth pace to continue for the next 12 to 18 months, as the thousands of new units under construction are delivered to the market. After that, he said, “rents should begin to rise again as the planned additions to the market will not keep up with demand.”
“These forecasts assume that the region will continue to add at least 30,000 new jobs per year over the next two years, which seems to be a reasonable assumption based on the continuing attractiveness of the Austin area for employer expansion and relocation,” Heimsath said.
Considering just the top-tier, or Class A, complexes, Austin has the highest occupancy rate among major Texas metro areas st 86.1 percent, said Robert Kramp,director of Research & Analysis for CBRE, a global commercial real estate services firm.
“The Austin market is pretty tight right now,” Kramp said. “The (Class A) units are filling up very quickly.”
Rents for Class A units also are the highest in the state, averaging $1,561 per month, Kramp said.
“On the whole Austin’s multifamily market is very healthy,” Kramp said. “It has the highest effective Class A rent… with the lowest level of concessions,” which “adds up to some of the priciest units in the state.”
In a survey of rental concessions in Texas cities, CBRE found Austin apartments offered the lowest level concessions — an average of only 2 1/2 free weeks, equating to about $1,670 in savings. Nearly half of the properties surveyed offered no concessions for renters, Kramp said.
Among the same number of Houston complexes surveyed, the average concession was 1½ months of free rent, or about $2,700 in savings, Kramp said.
“With an ever increasing level of demand, landlords and developers are less motivated in the Austin area to offer concessions on new Class A product in comparison to their counterparts through the state,” Kramp said.
However, Kramp noted there are some deals among the newer apartments — particularly in the areas of South Lamar/South Congress, far south Austin and central Austin — of about 1 1/2 months’ free rent.
Morgan Powell, 25, who works in sales for Aflac, a provider of medical insurance, recently signed a lease at a complex called Altis, across from Lakeline Mall in Northwest Austin.
Powell, who is from Austin, said he got two months of free rent.
“It helps when you don’t have to worry about paying the rent for the first two months and you can focus on buying the things that you need… The costs can really add up and it’s nice to not have to worry about rent on top of all that as well.”
His rent is $1,120 a month for a 1-bedroom unit with 725 square feet.
“I had a little bit of sticker shock, but after shopping around a little bit more and figuring out how much a decent apartment costs, I realized it was a pretty good price, in line with the market,” Powell said.
Rents leveling off
In its mid-year report, Abodo, which tracks the national rental market, said: “Rapidly expanding Austin, which saw its population grow 3 percent between 2015 and 2016, is no stranger to high rents. In recent years, exponential growth and constant development have sent rents soaring. But in the first half of 2017, things leveled off a bit…
From January to May, one-bedrooms decreased to $1,109 from $1,132 before ticking upward in June and July. Two-bedroom apartments fell from $1,430 in February to $1,401 in June, before ticking up again in July, Abodo said.
Sam Radbil, Abodo’s senior communications manager, said that popular cities including Denver, Portland and Chicago are continuing to see large rent increases.
“Austin, where things have been growing so fast for quite awhile, is usually in that category, so I’m sure renters are happy to see some relief there,” Radbil said.
Ingrid Evens, assistant manager at A Plus Apartment Locators, said normally in the summer rents “shoot up a lot,” but she hasn’t seen that this summer. “For the most part, it has stagnated. It hasn’t gone up as much as recent summers.”
Radbil said that the region’s slower job growth “could keep rents in check, as developers and property managers attempt to keep vacancies at a minimum.
“No one wants an empty luxury apartment building,” Radbil said.
Construction pipeline slowing
Though the region’s apartment-construction pipeline is robust, it is beginning to slow, Kramp said, with 13,800 units due to be completed from now through year-end 2018. Nearly 17,400 new units opened across the region in 2015 and 2016.
RealPage, a rental housing technology and analytics firm based in Richardson, shows that ongoing construction has slowed to about 15,200 units, down from a recent high of 19,000 to 20,000 units. But the oncoming additions still translate to aggressive growth of 6.6 percent in Austin’s supply of new apartments, said Greg Willett, chief economist for RealPage.
“Our expectation is that occupancy will slip a little over the coming year or so,” Willett said. And annual rent growth is expected to remain sluggish, between 2 percent and 2.5 percent, Willett said.
Similarly, Heimsath predicts local apartment market “should continue to remain stable with very little change in average rent or occupancy through the end of 2017.”
Apartment developer bullish
Along Austin’s rapidly redeveloping East Riverside Drive corridor, Presidium Group just started construction on the parking garage for its Edison apartment complex. Edison will add 353 apartments to an area that has seen a surge of new upscale units being built or planned.
Edison’s first units are due to open in May or June of 2018, said Nathan Vargo, senior vice president of development for Presidium Group, which has offices in Austin and Dallas.
Rents are projected to range from $1,186 a month for an efficiency with 516 square feet to $2,143 a month for a two-bedroom unit with 1,261 square feet.
Although both the region’s low unemployment rate and rapidly rising housing prices are of concern to employers and “have impacted the amount of jobs moving here, I don’t think it will slow for the long term,” Vargo said.
“I think the outlook for Austin’s job market is very good and therefore the rental market will continue to be very good,” Vargo said.
Presidium, which owns 140 acres in the East Riverside area, plans to continue expanding here. In two years or so, the company hopes to start construction on a mixed-use project behind the H-E-B grocery store at East Riverside and Pleasant Valley Road. The project is expected to have anywhere from 325 to 375 apartments, Vargo said.
“We are optimistic about the multifamily market for the near- and moderate-term future,” Vargo said. “Both employers and the unemployed will continue to flock to Austin, because the lifestyle the city offers is best recruiting tool money can buy, and employers know that.”
Most expensive U.S. rental markets*
San Francisco — $3,450
New York, NY — $2,950
San Jose — $2,390
Washington, D.C. — $2,210
Boston — $2,200
Los Angeles — $2,100
Oakland — $2,100
Seattle — $1,910
Miami — $1,800
Honolulu — $1,800
*Median rents in June for 1-bedroom units