Downtown Apartment Market Softening

Over the next year, the central Austin rental apartment vacancy rate is expected to jump significantly from 3.6 percent to 9.4 percent.

This negative trend is in stark contrast to what is happening in the rest of the City, where employment growth and migration are reversing the current apartment supply glut. According to market data from Marcus & Millichap Real Estate Investment Brokerage, citywide apartment vacancy rates are expected to drop 9% this year. In hot areas of the city — such as the south central area near South Congress Ave, vacancy is expected to drop significantly as more units are absorbed.

Across the city, rents dropped 3% last year as more than 10,000 new units hit the market. This year, rents are expected to increase slightly (2.4%) as only 2,860 new units are expected to hit the market.

In downtown Austin where rents are highest, tight spending is limiting absorption of new units. Central Austin apartment rents average $1,014 — significantly higher than the citywide average of $864.

According to the firm, “the city is forecast to add 19,100 jobs this year, prompting a rush of new residents and a rise in demand for residential rentals. At the same time, the apartment development pipeline has drastically thinned out, with 2,860 new units expected this year, down from 10,340 in 2009.”

With a strong supply of downtown apartments, potential renters will be able to negotiate better rents and more attractive incentives, especially for higher-end units.