The Austin-area apartment market is continuing on its hot streak, with rents and occupancies hitting the highest levels in the 21 years that a local expert has been tracking the numbers.
The area’s midyear apartment occupancy rate stood at 97.8 percent, said real estate consultant Charles Heimsath, president of Capitol Market Research. He said that’s the highest rate since 1991, when he started surveying the market.
The high occupancy is pushing rents up too. They hit a record $953 a month, Heimsath said, with that figure representing an average across all unit sizes. That’s a jump from a $900 average in June 2011.
Although more than 10,000 apartment units are under construction in the area, demand is still easily outpacing supply, experts say.
“It’s getting insane,” particularly in areas in and near downtown, including the popular 78704 ZIP code, said Drew Johnson, a real estate agent with Live Weird Realty. “Demand is exploding.”
While landlords are raising rents, many tenets are facing sticker shock.
Caprice Capri said her salary as a cook at Austin’s Pizza on South Lamar Boulevard might not be enough to pay the rent when she finds her next apartment, which she needs to do by month’s end.
Capri, who moved back to Austin in January from Fort Worth, works five nights a week. But she said she might have to get a second job “to afford an efficiency in this town.”
“I don’t live to work; I work to live,” said Capri, 42, who said she takes home about $700 a month, plus tips. “You shouldn’t have to work all your waking hours just to have a roof over your head.”
Capri’s situation is a common refrain these days among apartment seekers in the Austin metro area.
Driven by job growth and a robust influx of newcomers — more than 50,000 a year — along with a recession-caused dearth of new units being built, the region’s apartment market has become one of the nation’s hottest over the past two years in terms of rising rents and occupancy. And experts expect the rental squeeze — and the escalating rents — to continue through next year.
The recipe for a tight apartment market is a growing population coupled with a shortage of new supply coming on line, and Austin has both.
Its economy has fared better than most U.S. metro areas during the downturn, making it an attractive place for job seekers, including younger people who are likelier to rent. But even Austin wasn’t spared from the recession and the ensuing financial constraints that made it virtually impossible to obtain financing in recent years for new projects, including apartments.
“The recession put a big crimp in the development pipeline,” said Karen Judson, a vice president for Houston-based developer Transwestern.
The past year, however, has seen lending loosen up somewhat, and that has led developers to put some stalled projects back on the front burner, or to plan or start new ones.
Heimsath’s research shows 10,604 apartment units currently under construction, more than a tenfold increase from the 839 under construction in June 2011. An additional 8,800 are in the planning phase for the next few years, he said.
New apartment construction in Austin “will be among the most aggressive seen anywhere across the country during the next couple of years,” said Greg Willett, vice president of research and analysis at MPF Research, which tracks the local apartment market.
Despite that new development, Austin’s multifamily market will remain among the nation’s tightest at least for the near future, experts say, because apartment construction still lags below its peak levels. As many as 15,000 units were being built as recently as 2008, Willett said.
“Today’s building activity, then, still hasn’t gotten up to the peak levels seen during the past two market cycles,” said Willett, whose research showed Austin’s apartment occupancy at 95.6 percent, slightly lower than Heimsath’s figure.
Heimsath said the market will remain “very undersupplied” for the rest of 2012. Like Willett, Heimsath said he thinks “we’ll see a little bit of easing in 2013 as new units get delivered to the market, but I see continued tight market conditions at least through the end of 2013.”
Experts from outside of Texas also foresee the squeeze continuing. John Burns Real Estate Consulting, an independent research and consulting firm that focuses on the housing industry, recently released its forecast for 78 U.S. metro apartment markets. Along with San Jose, Calif., and Raleigh, N.C., the firm said Austin is among the tech-oriented markets that will continue to experience strong rent increases over the next five years as job growth drives up rent demand.
The consulting firm also ranked Austin in the category of “younger” markets — a list that includes Dallas, Charlotte, N.C., and Tampa, Fla. — where a relatively young population with a greater propensity to rent is expected to drive rental demand over the next five years.
Heimsath and others say they don’t think the market will be oversupplied with the current level of construction. That’s because the projects in the works represent a variety of product types — from garden-style units in the suburbs to mid- and high-rise towers — and they have staggered completion dates.
“Everyone is worried that now we are going to overbuild,” said Judson of Trans-western, “but that’s unlikely.”
In fact, Willett said, the danger of an oversupplied market “probably doesn’t come until 2014 or 2015, when deliveries could be quite a bit more substantial than they will be in the next year or so.”
Variety of projects
The ongoing wave of apartment construction includes a wide variety of projects across the region.
Cypress Real Estate Advisors, HPI Residential and Grayco Partners are among the many developers adding new units to the market.
In far Northwest Austin, HPI is under construction on Lakeline Boulevard with a project called Indigo. The first of the 325 units should come online in October or November, with the project wrapping up next July, said Jim Norman, president of HPI Residential. Rents will average $1,116 a month, he said.
This week, HPI started construction on a second project planned for 334 units on Spectrum Drive and Parmer Lane. Monthly rents will average $1,085.
Off East Riverside Drive and South Lakeshore Boulevard, Houston-based Grayco Partners expects to have the new streets and utilities substantially completed in August at its SouthShore District project, which will have 506 units in three phases. The first units should be ready for tenets in April.
Cypress has four projects that are under construction or soon to start. They include Lakeshore Pearl, a $20 million project planned for 230 units along Elmont Drive off East Riverside, where the first 82 units and clubhouse will be ready in mid-November. Rents will average $1,275 a month, said Dudley Simmons and John Burnham, who are heading up Cypress’ apartment projects.
“We’re ecstatic with where occupancies are now,” Simmons said. “We feel comfortable that what’s under construction and in the immediate pipeline can be fairly easily absorbed, assuming the continuation of job growth and net in-migration to the Austin area.”
But with market conditions in landlords’ favor, many tenets are having a hard time, said Joel Canada, a real estate agent with Live Weird Realty.
“They’re getting very frustrated with the prices,” Canada said.
Among those is Capri, the Austin’s Pizza employee. With her roommate moving out of their two-bedroom apartment off South First Street and Lightsey Road in South Austin, Capri is scrambling — so far in vain — to find a comparable apartment she can afford in the same area.
The rent at her current apartment is increasing from $1,075 a month — her share with a roommate was $536.50 — to $1,275 a month, far more than Capri can afford on her own.
One-bedroom units in her current complex rent for about $925 a month; the least expensive efficiencies she’s found in the area are going for $725 to $750 a month, she said.
“It’s ridiculous,” she said. “I’m about to lose my mind. I didn’t know it would be so expensive to live on my own.”
BY THE NUMBERS
The area’s mid-year apartment occupancy rate
Average monthly rent, a record high, or an average of $1.10 a foot
Apartment units under construction in the area
Here is a sampling of some area apartment projects, both planned and under construction:
■ Cypress Real Estate Advisors: 298 units at University Park north of downtown, with several hundred more planned there; 230 units on Elmont Drive off East Riverside Drive
■ Grayco Partners: 506 units off East Riverside Drive and South Lakeshore Boulevard, with future additional units planned
■ HPI Residential: 325 units on Lakeline Boulevard; 334 units at Spectrum Drive and Parmer Lane
■ Endeavor Real Estate Group/Columbus Residential/RREEF: 543 units at the Domain
■ Gables Residential: 222 units downtown, next to Seaholm
■ Alliance Residential: 330 units in the Arboretum area; 280 units in Round Rock
■ Riverside Resources: 277 units at Third and Brazos streets
■ Transwestern: 378 apartments around the Broken Spoke on South Lamar Boulevard
■ Ardent Residential: 202 units at South Lamar Boulevard and Gibson Street
■ Post Properties: 298 units on South Lamar Boulevard
■ Cypress Real Estate Advisors: 357 units at South Lamar Boulevard and Manchaca Road; 256 units in a project called Corazon in East Austin
■ Green Water Treatment Plant redevelopment: about 825 apartments
■ Seaholm Power Plant redevelopment project: 294 apartments
■ Endeavor and Lynd Co.: 358 apartments on Bowie Street near West Fifth Street downtown
■ Alliance Residential: 220 units at South First Street and West Riverside Drive
■ Novare/Andrews Urban: 320 units in an apartment tower on Rainey Street downtown
■ Hanover Co. : 340 units on South Lamar, just south of Uchi
■ Greystar: about 400 apartments at the Lamar Square shopping center that houses Alamo Drafthouse and the Highball
■ The Sutton Co.: 800 to 1,000 units in two towers in the Rainey Street area
Source: The Statesman/Autin, TX
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