Apartment Construction is Remarkably Spread Out in Austin

Austin has seen one of the nation’s most aggressive inventory growth rates during the current cycle, and 2019 is set to deliver more of the same. But unlike in most other market leaders for inventory growth, developers in Austin haven’t focused their efforts on any certain area. Instead, construction has been remarkably spread out across the Austin market.

In total, apartment developers have completed more than 60,000 new units in Austin during the current economic cycle, which began in early 2010. This new stock grew the existing inventory base by a stunning 30.8%. This was the second-largest increase among the nation’s 50 largest apartment markets.

Also growing their apartment stocks by about a third in the cycle were Charlotte, where almost 47,000 units were delivered, and Nashville, which saw the completion of nearly 36,000 units. In both of those Southeast markets, a handful of submarkets accounted for the bulk of new units in the cycle. Charlotte’s Uptown/South End received nearly a quarter of the market’s total new apartments. In Nashville, a third of deliveries went to the downtown Central Nashville area.

Out of Austin’s 16 submarkets, 11 have recorded delivery of 3,500 units or more during the current cycle, with only two receiving supply of more than 5,000 units. Not one submarket accounted for even a 10% share of the deliveries seen during the current cycle. By spreading these completions out across the market, individual submarkets have mostly avoided periods of oversaturation.

Southwest Austin and Cedar Park received the biggest completion volumes, with about 5,600 units delivering in Southwest Austin and nearly 5,500 units coming online in the northwestern Cedar Park area. Even these supply leaders each accounted for only about 9% of the market’s total new supply tally from the past eight years. New product in both locales was absorbed fairly quickly. While completions in Cedar Park increased the existing inventory base by more than 70%, this was an area that had seen very little new product before the cycle began.

Accounting for about 8% of Austin’s cycle delivery volumes were the northern submarkets of Pflugerville/Wells Branch, Round Rock/Georgetown and North Central Austin as well as the southern university community of San Marcos. These are the four least expensive submarkets in Austin.

Even Austin’s urban core – the expensive Downtown/University area – only received about a 7% share of new supply in the current cycle. The Arboretum accounted for Austin’s smallest slice of the completion pie, with 0.5% of the total.

As a result of new product additions being geographically dispersed, occupancy in Austin has closely mimicked the U.S. norm. That’s significant given the sheer volume of new units delivered to Austin over the course of this cycle, and a rare feat for such a high-development market. Rent growth, however, has been more prone to swings.

In the year ahead, overall delivery volumes in Austin are expected to remain elevated, as 2019 is on tap to be the sixth consecutive year in which completions reach 8,500 or more units. Some performance slowdown is expected, given the length of this cycle’s supply wave and the mounting completions.

For more on performance expectations for Austin’s apartment market, see 2019 U.S. Apartment Market Outlook.

Atlanta Lands Among National Rent Growth Leaders

Historically a rent growth underperformer, Atlanta’s apartment market has seen considerable price increases during the current economic cycle, and now performs well ahead of the national norm.

Atlanta ranked among the country’s rent growth leaders in 2018, with a price increase of 4.8%. Among the nation’s largest 50 apartment markets, only three bested this performance: Las Vegas, Phoenix and Orlando.

It’s historically been uncommon for Atlanta to raise rents ahead of overall U.S. averages, partially because supply volumes tend to run high in this market. This gave Atlanta an advantage when the national building spree started during the current cycle, and, with the help of a strong local economy, the market absorbed its share of heightened completions relatively well. With occupancy strengthening in the past few years, Atlanta operators were comfortable pushing rents to new heights.

Looking back, rent growth in the Atlanta apartment market hung behind much of the nation for the better part of the past 20 years. But in mid-2013, Atlanta rent growth pulled ahead of the U.S. norm and continued to gain momentum until topping out at 7.4% in early 2015. While that performance has since moderated a bit, today’s growth pace remains strong, a few ticks ahead of the market’s cycle average of 4.1% and well beyond the national standard of 3.3%.

Primarily responsible for Atlanta’s move into the rent growth spotlight has been the performance in the Class C stock, according to the latest RealPage Asset Optimization webcast. As the Great Recession ended in 2009, price positioning bottomed out. At that time, Atlanta’s more affordable Class C units were suffering annual rent cuts of more than 12%. While the other two product lines were also logging price declines, the damage was less severe, with cuts of roughly 6% to 7%.

Throughout the course of the current economic cycle, the more affordable units have logged the most rent growth progress. For the first few years, all product lines saw rent change mostly improve. Class C units gained ground quickly and peaked at 6% in 2015, overtaking growth in the Class A stock. At the end of 2018, rent growth wasn’t far from that peak at 5.6%. This was one of the best performances seen nationwide for Class C units. The affordable stock did better in only two other markets in 2018: Las Vegas (6.3%) and Phoenix (5.8%).

Atlanta’s Class B product logged a stronger peak at 9.3% in 2015, but has since come down notably, landing at 5.7% in 2018. Class A stock peaked earlier, logging 8% rent growth in 2014 before the increases started to fall dramatically. By year-end 2018, annual rent growth in the most expensive product line was moderate at 3.2%.

While Atlanta rent growth surpassed U.S. norms recently, occupancy here still trails national averages, but not by much. At 94.7%, Atlanta’s late 2018 rate is one of the best showings this market has seen in two decades and is less than 100 basis points (bps) below the U.S. reading. Occupancy in Atlanta has traditionally run about 300 bps to 400 bps below the national average.