The Austin multifamily market is extremely strong overall, with the most robust submarkets found in the Central Business District, South Central and Southwest submarkets. Due to the number of previously shelved projects coming back online, potential deliveries in 2012 will likely be around 3,500 units, followed by another 5,500 units or so in 2013. However, there are no major projects scheduled to be completed in 2012 that will have a drastic effect on the market — most of the starts that have taken place will not come on line until the first part of 2013.
As a result, the upward push on occupancy and rental rates seen during 2011 will continue throughout 2012 — until the market sees some of these new projects coming online, owners of Austin multifamily properties will continue to be aggressive on rents and not offer concessions.
One of the leading factors supporting this focused rise in apartment revenues is Austin’s ranking as one of the top growth markets for jobs. In particular, the CBD and South Central areas have seen an influx of new companies that want to be located in the middle of the action — and, thanks to the employees brought to the area with these businesses, these submarkets have become hotspots for multifamily activity. The dwindling availability of office space will make it more difficult for activity to continue at this pace moving forward, but if companies can still find central locations to set up shop, we will likely see more mid-rise and high-rise projects come online. Of course, it does come down to a numbers game, so the future of development in these areas also depends on the price landowners are willing to sell their land for, which certainly isn’t getting cheaper.
Rebounding employment has also led developers to shift toward building a larger percentage of one-bedroom units, supplemented by a stock of two-bedroom units. The three-bedroom floor plan seems to have lost its luster, given that job growth is mainly centered on young, single professionals between 25 years old and 35 years old. We foresee this pattern will continue, translating to heavily amenitized units with smaller overall square footages, and common spaces that are open and inviting from a social gathering standpoint.
On the acquisition side, Austin has seen a great deal of activity. The indication from local brokers is that quality assets being taken out to the market are receiving between 10 and 20 qualified offers — sometimes more. The only thing that may slow this pace will be cap rate compression. If buyers in Austin start having to pay cap rates akin to those typically seen in gateway or coastal cities, the activity will likely slow down or prices will start to dip.
Overall, Austin will remain a very attractive market for both buyers and developers, especially if the availability of equity for out-of-the-ground projects continues to be limited and slow to commit.
— Brandon Easterling is the managing director of development for Austin and Stephanie Nascimento is the regional vice president for Austin, Houston and San Antonio, both with Alliance Residential Co.