Multifamily Vacancies, Concessions Rise

AUSTIN-A third-quarter report by multifamily advisory firm Hendricks & Partners says apartment units continue to come on the market even as the area’s job growth slows dramatically. The vacancy rate is up and rents increases have stalled and concessions have proliferated.

Things could be worse, but about a third of the 57 projects that have been approved or are in the planning stage have been delayed or on indefinite hold, according to the report. Also, builders sought permits for 842 units in the third quarter, down from 2,020 for the third quarter in 2000.

Still, the reports says, apartment construction seems more geared to the 5.8% job-growth rate of the past three years rather than the 1.4% rate posted in the year ended in September. About 16,000 units have received permits, are under construction or are in the lease-up phase. That comes on top of the 4,447 units were completed in the third quarter and more are on the way.

Thirty-four properties with a total of 10,443 units were under construction in the third quarter and 9,266 of them are to be completed by September 2002. Most of the construction is in the northeast, northwest and far northwest submarkets.

The Hendricks report says 4,337 units were absorbed in the third quarter, up from 2,147 in the 2000 third quarter. The absorption couldn’t keep up with construction and the overall vacancy rate rose to 5.1% in the third quarter, up from 2.1% the year before. Some properties below class A have vacancy rates from 7% to 12%.

Austin area rents average 5.1% higher than a year ago, but increased just 0.5% from the second quarter to the third quarter, according to Hendricks. What’s more, concessions are wiping out rent increases. More than 77% of class A properties offer concessions while 61% of class B and 44% of Class properties offered concessions in the third quarter.

The report says the northern submarket has been aggressive, offering free rent for two to four months. Locator fees are on the rise with 43% of properties paying 100% or more of the monthly rental rate, up from fees equaling 50% of the rental rate.

Sales are on the same pace of 2000 with 26 transactions through the third quarter. Newer property sales have slowed, however, because of uncertainties in that market from increased competition. Underwriting guidelines have tightened because of increases in real estate taxes, insurance and utilities and concerns about more vacancies.