Multifamily Roundup: High-Growth Austin vs. Steady San Antonio

by Taylor Williams

Despite being located 80 miles apart, the Austin and San Antonio metros might as well be on different planets when comparing growth and multifamily operations during the current business cycle.

While both multifamily markets have been in growth mode since the Great Recession, Austin has outpaced San Antonio with a rapid rate of expansion during this time. Austin’s job growth has risen steadily at an average annual pace near 4 percent since 2010. In addition, strong migration to the metro has contributed to the 20,000-plus households that have been created annually during this span.

Craig Swanson, Marcus & Millichap

In comparison, San Antonio’s total employment has risen by an average of 2.7 percent annually for the past eight years, though the rate has dipped below 2 percent over the past four quarters. The pace of migration remains healthy, but the rate of household formation has been slower in the Alamo City. These differences in job growth, migration and household formation have impacted each metro’s apartment market differently.

Development Disparities

Developers have targeted Austin over the past few years, and the market has received significant supply additions. The metro has consistently ranked in the top 10 markets across the country for new deliveries over the past few years, and nearly 43,000 units have been added since 2013.

Despite apartment stock expanding by roughly 20 percent during this period, strong demand for units has kept the metro’s overall vacancy rate near the historical norm at 5.8 percent, where it stands as of second-quarter 2018. Demand has been strongest for the thousands of Class A units delivered in the metro. The Class A vacancy rate of 5.4 percent is the tightest across property classes, a reverse trend when compared to the rest of the country.

By contrast, San Antonio developers have added just 26,700 units to stock during the past five years, a 15 percent increase in inventory. While vacancy in the second quarter remains 40 basis points below the 18-year average, the market claims the highest overall rate in the country among major metropolitan areas at 6.8 percent in June.


A healthy pace of multifamily deliveries over the last 18 months has kept San Antonio rents affordable. Investors like Benimax, which acquired Ridgeline at Rogers Ranch in June, are buying in at lower cap rates at a time when the metro’s population is booming.

Unlike Austin, Class A properties in San Antonio boast the highest vacancy among asset classes. The rate has climbed 270 basis points since the end of 2012 to 7.1 percent. Instead, following a nationwide trend, demand has filtered into Class C properties with vacancy tightening 50 basis points to 6.6 percent over the same span.

Common Ground

One commonality between the two cities during this growth cycle has been strong rent gains. Advances have been highest in Austin at an average annual rise of more than 5.7 percent, compared with San Antonio’s average growth of 3.7 percent yearly. But the pace of growth in the state’s capital began slowing in 2016 as operators increased the use of concessions to attract tenants.

Meanwhile, the use of leasing incentives in San Antonio has been on the decline during this span, resulting in a stronger pace of rent growth for the metro. Though the market remains the most affordable of Texas’ major markets with average rent below $1,000 per month, the average has come close to breaching this threshold at $958 per month in the second quarter. Meanwhile, the highest average rent in the state — $1,215 per month — can be found in Austin.

Investor Outlook

With first-year returns on multifamily properties in Austin averaging 75 to 100 basis points lower than those of their counterparts in San Antonio, many investors in search of higher returns have been encouraged to seek opportunities in the Alamo City.

Overall transaction activity has been lower in San Antonio; however, much of that can be attributed to fewer sales of properties priced over $20 million. Sales above this threshold comprised approximately 50 percent of total trades in Austin over the past year as REITs targeted the market for Class A assets. In San Antonio, sales of properties with price tags in excess of $20 million made up 35 percent of activity during the year, while trades under this threshold matched volumes of similar deals in Austin.

Depending on investors’ goals, each market offers attractive opportunities. San Antonio’s urban core is arriving later to the redevelopment cycle than Austin, and investors in search of upside may find more opportunities here than in Austin, where re-gentrification has taken place much earlier.

Looking forward into the final half of 2018, deliveries in Austin remain elevated, placing additional supply-side pressure on vacancy this year as demand catches up to absorb new stock. Vacancy in the market is set to rise again in 2018 as a result while rents advance at more moderate paces.

In San Antonio, second-half completions should fall from the prior three years. This dip in completions will be met with healthy demand, potentially causing vacancy to decline slightly for the first time in five years. The average rent in San Antonio remains the lowest of Texas’ four major metros, but unlike in Austin, rent growth is expected to remain steady through the remainder of the year.

By Craig Swanson, regional manager, Marcus & Millichap. This article first appeared in the September issue of Texas Real Estate Business magazine. 

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