Revenues TOOK A BIG HIT in the Austin, Texas, apartment market in 2008-2009, falling by more than 11 percent, taking into account both the drop in occupancy and the decline in effective rents for new leases. Rather than a decimated economy and resident loss, simple overbuilding was the main culprit in this revenue downturn. The metro just couldn’t handle two-year additions that totaled about 18,600 units, growing inventory by nearly 12 percent.
With that set of performance influences, Austin appears in a better position than most other locales for a quick comeback in the apartment sector. Stop the new supply flow, and occupancy will improve rapidly, with the return of rent growth likely to follow in short order.
Those shifts are starting to take place.
While Austin’s occupancy rate as of March still was only 90.2 percent, that figure was up 0.3 points since December and a full percentage point ahead of early 2009’s bottom-of-the-market rate of 89.2 percent. With recent completions leasing well, occupancy in the top tier of product has climbed by more than 3 percentage points during the past year.
Occupancy in Austin hasn’t yet reached a level that will stabilize rents. But for the past couple of quarters, the pricing downturn has been smaller than the loss seen during the same time period a year earlier. Thus, annual rent cuts are becoming less drastic. Effective rents as of March were off 4.8 percent from Q1 2009’s pricing, measuring change on a same-store basis. That compares to annual loss that had gotten as deep as about 7 percent in fall 2009.
There are 1,700 units left under construction in metro Austin. If demand keeps chugging along, and downside risks suggesting it won’t are minimal, overall occupancy easily could be up 2 percent to 3 percent by the end of Q3.
Source: MPF Research’s Greg Willett, April 5