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Austin Multifamily Market Report – June 2023

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Austin Multifamily Market Report – June 2023

Picture of Chris Nebenzahl

Chris Nebenzahl

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New Deliveries Driving Down Austin Multifamily Performance

For much of the past 10 years, Austin has been heralded as one of the best places to live and work due to its ideal mix of temperate climate, favorable business environment, cost of living, local political culture and talented workforce. From a population, employment, and economic perspective, the metro has been among the fastest growing. Rent growth quickly followed as in-migrants need for housing pushed the cost of living higher. However, in recent years, developers responded in kind to Austin’s seemingly continuous demand. On a percentage of stock basis, it is one of the most popular markets for new supply and has been throughout the 2020s. However, new supply is finally catching up with the market. As demand softens slightly, rents and occupancy are falling across the metro. Traffic and leasing remain high, but the new supply pipeline is full and will continue to deliver new product in several submarkets. The same friendly business climate, favorable weather and lifestyle amenities remain, but it will take several years to lease up the new stock coming online, which should depress multifamily performance for the foreseeable future.
Austin MSA Market Snapshot
Radix Rent and Operating Performance

Although demand remains elevated, and Austin outperforms the national average in both traffic and leasing, the impact of new supply can be felt across the metro. Absolute occupancy and rent levels are below the national average and the growth rates are indicating a concerning trend. On a month-over-month and year-over-year basis, occupancy, ATR, and NER are all negative. Given the significant construction pipeline remaining, it is difficult to see a reversal of this trend any time soon.

Traffic and Leasing

  • Properties across the Austin MSA are averaging 9.6 tours per week according to Radix data: nearly a full tour more than the national average.

  • Urban submarkets are seeing the most demand with the Near South Central submarket leading all others with properties averaging 15.4 tours per week. Not far behind are the submarkets of Central Austin and Near North Central.

  • Leasing activity is also strong in Austin, with the metro averaging 3.6 new leases signed per week. The conversion ratio of 38% is among the highest in the nation. Near North Central and Near South Central led all submarkets in leasing, with 6.0 and 4.9 new leases signed per week, respectively. Properties in the outlying submarkets of San Marcos and Travis County West also performed well, averaging 4.8 and 4.5 new leases signed per week.

  • Not only is demand high across Austin, but both traffic and leasing have increased over the past month. This continues to support the notion that Austin remains an attractive place to live with a robust multifamily market, however as we will see with occupancy and net effective rents, the existing demand just cannot keep up with construction.

Austin Traffic and Leases
Source: Radix

Occupancy and ATR

  • Austin’s occupancy rate of 93.8% ranks among the lowest in the nation despite such strong demand. While most markets have seen occupancy drop on a year-over-year basis, Austin’s occupancy is down 1.73%, well above the national average. It is also the second largest drop of all the markets tracked by Radix Research.

  • The Far North Central submarket, which includes the neighborhoods of Windsor Hills and Quail Creek, maintains the lowest occupancy in the metro at just 92.1%. It also represents the largest drop in occupancy, with the submarket average dropping 3.5% since last June. Central Austin and Southeast Austin have also seen their occupancy rates drop by more than 2% year-over-year.

  • Only one submarket, San Marcos, has positive annual occupancy. The suburban submarket along I-35 halfway between Austin and San Antonio has gained 72 basis points of occupancy over the past year.

  • The average property in Austin has 26 units available to rent in the next 60 days, 7 units above the national average. San Marcos once again leads all submarkets, as ATR has declined over the past 12 months. However, the Near South Central submarket averages 36 units available, and ATR is up 75% over the past year.

Austin Occupancy Rate
Source: Radix

Net Effective Rent and Concessions

  • NER in Austin is down 3.4% over the past year. Perhaps more troubling, NER is down 30 basis points market wide over the past month. While 30 basis points may sound minor, May is usually one of the best months of the year for rent growth, and if rents are falling during the prime rental season, it could indicate a very tough year ahead for the market.

  • Rents have fallen by 5% or more in 6 submarkets across the metro over the past 12 months. Travis County West, the Far Northwest submarket and the West submarket posted the largest drops, as NER fell by at least 6.7% in each submarket.

  • Perhaps not surprisingly, San Marcos is one of the few submarkets where rents are going up. NER is up 5.7% year-over-year and 3.8% month-over-month. Rents also increased in the Near Northwest and Far North Central submarkets over the past year, the only other submarkets posting gains.

  • Across the metro, concessions have increased by 218% over the past 12 months, and every submarket has increased concessions compared to a year ago.

Austin Net Effective Rent
Source: Radix

Employment Trends 

  • The employment market in Austin remains very strong despite some of the weakness in the tech industry in recent months. Austin has become a tech hub, offering a more affordable cost of living and easier business climate compared to San Francisco, New York, Seattle and Chicago. As such, many of the large tech companies have established a presence in Austin, and the startup scene in the metro flourishes as well.
  • The labor market was incredibly tight at the beginning of 2023 with the metro unemployment rate dropping to 2.7%. Despite continued job gains, the unemployment rate has increased to 3.5% as of March, 2023.
  • Job growth remains steady and nearly 54,000 jobs have been added in the past 12 months. For a market the size of Austin, more than 50,000 jobs added in a year is a sizable sum.
Austin New Job Formations
Source: Bureau of Labor Statistics
Austin Unemployment Rate
Source: Bureau of Labor Statistics

New Supply

  • As previously mentioned, the demand side of the equation is not the issue for Austin, as the market continues to attract new jobs and new inhabitants. The supply side is what is hampering multifamily performance.

  • There are currently 186 projects under construction across the metro. Most are concentrated along the I-35 corridor, but construction projects are creeping out into the outlying areas of the metro as well.

  • When adding the projects in planning, the total pipeline in Austin is more than 500 properties. While some may fall out as fundamentals weaken and borrowing costs rise, the sheer volume of new product coming on to the market will take years to absorb. Yes, Austin is a great place to live, work and play, but it is also a great place to build, and we are seeing both sides of that play out as the multifamily market is caught in the middle.

Austin Map
Source: BuildCentral

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Picture of Chris Nebenzahl
Chris Nebenzahl
Chris Nebenzahl is the Director of Economic Research at Radix, where he oversees all macroeconomic and multifamily market analysis. Chris has 15 years of multifamily experience in data analytics, research, asset management and acquisitions. Prior to his time in the multifamily industry Chris was a portfolio manager at Bank of New York, focusing in the government and commercial fixed income sectors.
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