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.

U.S. Apartment Market Sustains Solid Pricing Power in January

January fundamentals for the nation’s multifamily market continue to look favorable for owners and operators. Rent growth continues to strengthen as occupancy in the market remains very tight.

Average effective rent growth is up 90 basis points (bps) year-over-year to stand at 3.4% nationwide in January. The nationwide rent growth rate hasn’t been this high since August 2016. After hovering below the 3% threshold between mid-2017 and mid-2018, rent growth hit 3% in August 2018 and has been steadily climbing every month since.

Occupancy nationwide has been softening since August but is still up 20 bps year-over-year to stand at 95.1% in January. Occupancy tends to be lower in the colder months, so it’s not surprising that January’s rate has eased from the summer months. January 2019’s occupancy of 95.1% is the highest January rate the U.S. has seen during this economic cycle.

The ranking of top rent growth performers for year-ending January 2019 has many familiar names that have remained high on this list for several months – such as Phoenix, Las Vegas and Atlanta – as well as some newcomers, such as Sacramento. Austin’s 530 bps growth represents the largest year-over-year momentum shift among major markets in the nation.

None of the nation’s largest 50 markets saw negative rent change in year-ending January. The slowest-growing market, Houston, is seeing rents climb a mere 0.2% annually, but slowing growth has been the case in that market for the last four months or so.

Other laggards include Cleveland with 1.3% rent growth and Kansas City, Anaheim and New York, each with 1.8% rent growth.

Across the nation, about 390,000 apartment units are under construction with about 328,000 projected to complete in the next 12 months. That number is elevated from the previous 12 months when about 267,000 units were completed. In the last year, demand has well outpaced supply, as about 283,000 units were absorbed nationwide.

Dallas, Los Angeles and Washington, DC take the top three spots for the number of units set to complete in the next year. About 23,000 units are scheduled for delivery in Dallas, while 17,500 units and 15,400 units are scheduled for LA and DC, respectively.

However, when looking at scheduled new inventory as a percent of existing stock, Charlotte, Seattle and Dallas take the top spots with 4.1%, 3.9% and 3.8% growth, respectively.