Over the last decade, Austin has been one of the strongest rental markets in the country. As rents increased while supply grew, developers continued to come to Austin to add new rental capacity. Over the last few months, this trend has reversed. With thousands of new units hitting the market and economic conditions deteriorating, both rents and vacancy have begun to slide.
Since the vast majority of Austin rental units are outside of downtown, the recent slide most effects large commodity complexes in the areas surrounding the city. In downtown, where there are few units but where prices are much higher, developers are working equally hard to fill large new projects such as the Monarch & Legacy on Town Lake. For these developers, the hardest units to fill are the most expensive. Demand still remain solid for all sorts of affordably priced downtown housing, whether condos or rental units.
Here is a summary from the Austin Business Journal:
The Austin apartment market experienced one of the biggest drops in annual rent growth in the country during the third quarter, a new report shows.
Austin’s annual rents increased just under 1 percent in the third quarter, down from a 5.6 percent increase in the third quarter 2007, according to the report from Dallas-based Axiometrics.
“We’ve seen a big change in Austin from a year ago,” Axiometrics President Ronald Johnsey says. “Austin had been experiencing incredible job growth, and now that’s fallen off the cliff. The apartment vacancy rate has increased from 5 percent to 6 percent in the last year. Meanwhile, developers are delivering 8,000 new units this year.”
Johnsey predicts the market’s vacancy rate will rise to 8.1 percent in 2009. But developers have recognized the need to curtail new product. New multifamily permits dropped nearly 30 percent in the last year, and that leveling of product against demand should help stabilize the market in coming years, he says.
“That makes me a little more optimistic for Austin going forward,” Johnsey says.
Austin is likely to fare better than the rest of the country in the rental realm. Nationwide, rent growth is the slowest its been since early 2004, the report shows. The apartment vacancy rate increased to 6.5 percent last quarter, up from 5 percent a year ago.
Johnsey attributes both factors to the slowing economy and lack of new jobs. He says the significant inventory of unsold houses and condos has put pressure on housing prices nationwide and made it more difficult for apartment companies to raise rents.