Austin Poised to Emerge From Pandemic as a Premier Multifamily Market
By Sean Sorrell, senior managing director, JLL
As we enter 2021, there’s no doubt that we are emerging from one of the most unique and trying years that our modern civilization has ever confronted, and we all likely agree that we will never again endure a pandemic of this scale. As of the writing of this article, the first vaccines have arrived in Austin; our first responders have begun administering it to the public and we can finally see the light at the end of the tunnel.
In the face of these challenges, Austin continues to flourish, at least on a relative basis, and its real estate industry is poised to take a firm lead as one of the strongest real estate markets in the nation, if not the world. A key discipline within the industry is the apartment rental market, which is currently facing obstacles but continues to successfully navigate market conditions all the same.
The metro Austin apartment inventory is now approaching 200,000 units — a growth rate of 75 percent over the last eight years. While many cities would wilt under the pressure of this ongoing development surge, this market has flourished. The ongoing supply has marginally outpaced demand, but even in the face of COVID-19, the overall Austin market remains approximately 92 percent occupied.
JLL research indicates that nationally, over 6 percent of apartment renters have vacated units since April 2020, either moving back in within parents or “doubling up” with roommates in existing apartments. Austin has experienced some of these effects, but it’s likely in the 2 to 3 percent range across the metro. Interestingly, those renters that take this short-term approach are likely to re-enter the apartment market in the next year, which could easily result in the market approaching 94 percent occupancy by year-end 2021.
Austin’s population growth and need for more residential product is further underscored by a new report from industry research firm Redfin, which found that Austin is currently attracting twice as many out-of-town homebuyers relative to this time last year. Unsurprisingly, the Bay Area is the top region from which people and jobs continue to flow into the state capital.
Even amid COVID, Austin has received the biggest corporate relocation news on a worldwide basis. Earlier this year, Tesla announced the first of a multiple phase manufacturing/assembly facility that will open in summer 2021. The news is exciting, but the pace at which the facility is being constructed is awe-inspiring.
On December 11th, Oracle publicly announced the relocation of its corporate headquarters to Austin, and the magnitude of this announcement is reverberating across corporate boardrooms throughout the country. Several publications have stated this is simply the beginning for Austin and Texas as a whole, as firms look to establish themselves in right-to-work states with pro-business initiatives and policies.
The resulting benefits for the city will also create ongoing challenges, and it will be incumbent upon the city government to identify, consider and respond accordingly. In this vein, apartment development and ownership groups have led the way in responding to demand across the metro.
There are currently about 15,000 units due for completion in 2021, and another 16,000 or so units undergoing renovation to address the needs of the rental community. Moreover, several suburban markets are experiencing urban apartment development with Round Rock (Parkside), Cedar Park (Alden and Aura), Leander (Leander Station) and others transitioning from the sprawling garden communities to more efficient and secure communities of “wrap” and/or “podium” construction.
Apartment rental surveys reflect a positive response to both garden and urban product, so developers are leading the way to address future renter demand in our burgeoning market. While these numbers may appear daunting, there is evidence to support a potential demand total of approximately 18,000 units in 2021. These numbers reflect not only pent-up demand from 2020, but also the activity of renters who are moving away from the aforementioned “doubling up” and back into their own abodes.
Transactional activity has been very active, with many notable sales in the urban corridors as well as the suburbs. JLL, along with our peers, has been fortunate to close transactions during the pandemic.
One of biggest deals was for The Triangle, a 529-unit community in Central Austin that traded in July, with the new ownership planning to continue renovations and upgrades initiated by their predecessors. Other notable transactions over past several months included Aura on Riverside, Lenox Ridge in Wells Branch, IMT Riata and Mansions at Lakeway. In each deal, the pricing on the asset was at or above pre-COVID valuation levels, illustrating the overall strength of the market.
As we look forward to 2021, we expect a healthy climate for numerous transactions and aggressive capital to continue to flow into the local apartment market. Fundamentals may soften a bit, but a strengthening in the second half of the year is expected.