The Wall Street Journal is reporting that Austin experienced one of the largest increases in apartment vacancy rates last quarter among major metropolitan areas. The vacancy rate, which jumped to 9.2% from 7.5%, is both high and rapidly growing — a major problem for landlords and apartment developers.
The problem with the rental market is rooted in recent history. For a long time, Austin has been one of the strongest rental markets in the country in terms of absorption and rent growth. Even as developers rapidly increased the number of units earlier in the decade, the market remain strong as vacancy rates stayed very slow. When the market run finally ended, Austin developers had a record number of units still in the pipeline. The glut of new units is one of the major drivers behind the high vacancy rate.
This phenomena has played out downtown as well with delivery of the Monarch last year and the upcoming completion of the 36-story 259 unit Ashton at 101 Colorado and 31-story 183 unit Legacy on Town Lake. Making things worse, condo investors in major projects such as 360 are adding their units to the leasing market as well.
With oversupply and more units coming, rental rates are bound to drop. Already, existing and prospective tenants have found lots of room to negotiate as the major projects work hard to fill their units. When rental rates drop, there will also be a small negative effect on the condo market as the equation for condo investors shifts for the worse. With strong restrictions on investors in most new projects, this part of the downtown Austin condo market remains relatively small.
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