AUSTIN APARTMENT MARKET 2010
2010 AUSTIN APARTMENT REVIEW
- Occupancy Increased Minimally Year-Over Year
- 4th Quarter Saw Large Decline in Effective Rents
- Fundamentals are Strong and Jobs Continue to Increase
JANUARY 2010
Not surprisingly, August is a big month for the multifamily industry in the Austin area. With all the new leases for incoming students, we usually see impressive numbers for that month. And 2009 followed that pattern as well. After all the new leases in late summer we normally see a slow but steady fall off in occupancy through the fourth quarter. 2009 broke from that pattern, however. In a recession as deep and widespread as this one has been any good news is as refreshing as it is surprising!
The Overall Occupancy Rate finished 2009 at 89.1%, up 0.1% for the year. As late as May of last year, that figure had fallen to 86.9%, but rose as much as 2.5 percentage points by November, before it fell slightly at the end of the year. Rents, however, did not follow this trend.
The Overall Effective Rental Rate dropped $39 over the year to finish 2009 at $788 per month. Although steadily decreasing throughout the year, the decline gained momentum during the 4th Quarter, where $31 of this drop occurred. in the Austin area but whereas Occupancy managed a slight improvement, it was accomplished at the cost of rental rates.
As recently as the beginning of last year, Austin was not known as a concession-prone market. At that time, only about one in four properties offered an advertised concession, and that averaged only about 2.5 weeks free on a 12-month lease. Today, 54.6% offer concessions and they now average over 4 weeks free.
In fact, the majority of the reduction in Effective Rents came by simply lowering Asking Rents, rather than by offering additional rental concessions. Nearly 5000 new units were added in the area over the last year. Lease up rates have been fairly strong. For Same-Store Occupancy
Rates, they have only lost 0.9% over the year, even with all the new product hitting the market. This signifies a pretty healthy ability to absorb this new product. Unlike most places around the country, Austin has been experiencing job growth throughout this past year. At the beginning of the year, there were 827,573 people employed in the area; by November, that figure had climbed to 843,093. The Unemployment Rate rose from 5.2% to 6.9% because of more people looking for jobs, but job growth still occurred in 8 out of the 11 months (through November, the latest figures available from the U.S. Bureau of Labor Statistics).
There are more new units still in the pipeline as well as new projects being announced with expectations to begin construction early this year. Austin, however, is not experiencing the overbuilt conditions seen in many other Texas markets, so we should be able to handle these as they come on board. With the job market looking better, the fact that Austin never got hit too hard with this recession and that the fundamentals are in better shape here than in most places, the multifamily industry in Austin should look forward to a good year ahead.
ALN Apartment Data
Austin Market
General Overview Dec 2009 Annual Change
Occupancy: 89.1 0%
Units Added: 4,520 - 48.5%
Units Absorbed (Annual): 4,039 +110.6%
Average Size (SF): 849 +0.5%
Asking Rent: $826 -4.3%
Asking Rent per SF: $0.97 -4.8%
Effective Rent: $788 -4.7%
Effective Rent per SF: $0.93 -5.2%
% Offering Concessions: 55% +12.4%
Ave. Concession Package: 7.7% +10.6%
Local apartment market headed for a slowdown 2009
The apartment market in Central Texas is turning in renters' favor, a new report said. And it looks like the trend will hold for the foreseeable future as a wave of new complexes comes online, further reducing occupancy rates, the report said.
The region's apartments were 91.4 percent occupied in the firts quarter 2009, down from 94.1 percent in the year-ago according to Austin Investor Interests which tracks the market.
(Note: as of summer 2009 occupancy was down to 87.5%) Although the drop from the previous quarter wasn't big, it came in what is typically the strongest time of the year, when students move into campus-area apartments. It was only the second time in 15 years that occupancy has declined in the second quarter
The average rent was $824 a month, flat from the previous quarter. Two experts are forecasting rents to decline 3 to 5 percent during the next 12 months. One big factor is the high level of new construction. In the third quarter, 2,593 units were added, more than 4 times the number added in the third quarter of 2007.
And many more are coming in the 57 projects under construction, with more than 12,000 units left to complete. Half of those units are expected to open during the next two quarters, which have historically seen slow leasing activity,Lincoln is leasing the new Crescent apartment project at 127 E. Riverside Drive near Congress Avenue. Many of the 169 units are leased and are already being lived in
"Overall, we are not absorbing as many units as we should, given the continued, but lower, new job creation." Heimsath predicted that the region's apartment market will see nine to 12 months of slowly declining occupancy and that rents will decline 5 percent over the next 12 months. Willett said he thinks rents will decline 3 percent during the coming year, with that figure factoring in rent discounts.
Willett said that although the latest apartment numbers are "reasonably healthy," annual rent growth "has slowed dramatically from the 5 percent to 6 percent rate seen earlier, but it is still solidly in positive territory at 2.6 percent."
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Austin apartment glut, rent cuts predicted- Others, however, say market -- especially for high-end, downtown units -- will stay healthy.
Too many apartments are being built across the Austin area, and that means some tenants can expect rent discounts & other concessions by year's end.
(As of Summer 2009, Austin's occupancy rate had fallen to 88.8%, a -4.5% decrease from the previous year)
Willett says occupancy is headed down and predicts rents will flatten then decline 3 percent this year. "The market remains in decent shape for the moment but with so much additional product now under construction, it's pretty easy to see the headlights of that train bearing down on you."
Austin is on track to add 12,810 apartment units through the end of 2009, according to M/PF. That's the third biggest block of new supply on the way anywhere in the country, trailing only the 19,217 units under construction in Dallas/ Fort Worth and the 18,848 units under way in the Houston area. Willett said the Austin area needs about 1/2 as many units as are now under construction based on current demand, which he says has been sluggish. He said there are over 1,000 fewer occupied apartments now than at the start of this year. He predicts it will take two years for Austin to burn off its excess supply "if you stop building right now."
Stuart predicts properties like Riata and the upscale apartments at the Domain in North Austin and in the downtown market are "going to do very well." Also, rising gas prices "bode very well for the downtown market and for properties that are clustered in around a lot of the jobs, like the Arboretum,"
But Willett still contends that the Austin metro area, which "ranked as the star apartment market performer in Texas over the past few years ... is losing its luster." He thinks the market will bottom out by the end of 2009 before occupancy begins ticking back up.
Renting in Central Texas
Rents are for 2-bedroom, 2-bath apartments. Occupancy rates are for all apartments.
Date Average rent Occupancy rate
June 2000 $913 98%
June 2001 $951 93%
June 2002 $868 90%
June 2003 $812 88%
June 2004 $784 89%
June 2005 $811 93%
June 2006 $861 95%
Source: Capitol Market Research
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AUSTIN APARTMENT MARKET UPDATE
Not many bargains for renters this year
Austin apartment rents rising
A year ago, Austin apartments were offering cruises and two months' free rent to lure tenants. Now the Austin', Round Rock and Cedar Park's continued job growth, together with a sharp decline in the number of new apartments units being built, has boosted occupancies to their highest level in more than three years.
Austin metro area rental rates are expected to increase about 3 1/2 percent this year, with rentsaveraging $748 per month by the end of the year, according to M/PF, which tracks the apartment market in 58 cities nationwide.
"Rents are going up, and specials are going down," said Mike Stotts, owner of HomePlace Apartment Search, an Austin-based apartment locator service. "The market is definitely on the upswing."
About 60% of the apartment communities surveyed are offering incentives, the specials offered aren't nearly as great. Apartment landlords' positions have strengthened as occupancy levels have increased.
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Cedar Park's first major retail center open
Mixed-use project is expected to rival Lakeline Mall in size.
Where cattle once roamed on 90 acres, the $125 million 1890 Ranch center will offer 800,000 square feet of stores, 100,000 square feet of offices, 50,000 square feet of restaurants and a 12-screen movie theate
Movies, shopping and dining are headed to Cedar Park, as Austin-based Endeavor Real Estate Group prepares to break ground in October on the town's first major regional retail center, which when completed, will rival Lakeline Mall in size.
A 12-screen Cinemark Inc. theater and other tenants including a SuperTarget, OfficeMax and Petsmart, will anchor the $125 million mixed-use project, marking the first significant push of Central Texas' retail boundary north of Lakeline Mall. The shopping center, including the cinema, are expected to open in October 2007 at the northeast corner of RM 1431 and the new U.S. 183-A tollway.
The shopping center will include a food court and large plaza designed to serve as a gathering spot for the town, a growing bedroom community northwest of Austin.
Endeavor is calling the project 1890 Ranch, a tribute to the original name of the site, which once was a cattle ranch. The finished project will have 900,000 square feet, nearly as much as the 1.2-million-square-foot Lakeline Mall about five miles south on U.S. 183.
The project will be developed in two phases on 90 acres. The first phase will have 530,000 square feet of retail, plus 100,000 square feet of office and medical office space. The second, which Endeavor expects to start in the first quarter of 2007, will have 270,000 square feet of retail.
The project will be an important addition to Cedar Park's economy, allowing it to capture sales tax dollars that otherwise would go elsewhere, said Charlie Northington, a principal with Endeavor who is overseeing the project.
The project is expected to generate several million dollars a year in sales taxes for the city, said Phil Brewer, Cedar Park's director of economic development.
The nearby hospital, scheduled to open in March 2008, "will add a daytime population that wouldn't be there otherwise," Ellis said.
Ellis said the site has "all the makings of a strong retail location."
The extension of Parmer Lane and construction of the U.S. 183-A toll road "create a brand new regional intersection for Cedar Park," Ellis said.
About 82,000 people live within five miles of Endeavor's planned shopping center, Ellis said. The average annual income of those households is $80,900, more than in the heavily retailed Arboretum area in Northwest Austin, where many national chains have stores that are among their highest-grossing.
Ellis added that the growth in Cedar Park "is going to be substantial in the near future with new residential," which in turn will drive demand for retail.
Endeavor is developing several retail and mixed-use projects throughout Central Texas including the upscale Domain center that Endeavor and Simon Property Group are building near the Arboretum, and Southpark Meadows, a 425-acre retail and residential development at Interstate 35 and Slaughter Lane.
Cinemark plans to open a 14-screen theater at Southpark Meadows in March. That, along with the Ranch 1890 cinema, will be two of four theaters with 54 total screens that the company plans to open in Central Texas in the next year, Cinemark President Alan Stock said.
Other projects on tap for far Northwest Austin include Lakeline Station, a mixed-use development planned by Pacific Summit Partners for 335 acres near U.S. 183 and RM 620. The $400 million project is slated to include up to 3,000 homes, plus 150,000 square feet of neighborhood retail and would take up to eight years to complete.
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