Apartment Market Getting Poised for Rebound

AUSTIN-Results from second-quarter multifamily reports indicate Austin may be approaching the bottom of the cycle. The Austin Investor Interests report and Capitol Market Research’s latest analysis showed rents continued to drop even though occupancy levels posted slight increases.

Austin Investor Interests reported a 0.49% increase to 88.88% in the second quarter while Capitol said occupancy rose to 90.3% from 90% at the end of 2001. Those occupancy increases, however small, are significant. Historically, Austin Investor Interests said, occupancy levels drop 1% to 2% in the second quarter as the thousands of college students in the area leave for the summer. In the 10 years the firm has tracked the market, the only other time that occupancy levels rose was second quarter 1998.

Despite the occupancy increases, rents continued to drop in the second quarter. Citywide, rents fell 5.3% in the past six months to 89 cents per sf, according to Capitol. That drop puts rents at fall 1999 levels. “This decline can be attributed to lower overall demand and the pervasive use of special rates and rental concessions to attract tenants,” Capitol said. Average rents for apartments completed since 1990 are 95 cents per sf, 5.3% higher than the market.

Austin Investor Interest said the lower effective rents have narrowed the price gap between classes of apartments. As a result, the report said, tenants are moving to bigger amenity packages at lower prices instead of choosing location and convenience at higher prices.

Those pressures, in turn, could be causing lower occupancy levels in areas that cater to students such as Central Austin and San Marcos, according to Austin Investor Interests.Both reports said there has been positive absorption in the Austin market. For the first six months, 2,917 units were absorbed, exceeding the number of completions by 35, according to Capitol. The report cautions that 13 projects are under construction and will deliver another 3,500 units through year’s end. However, if jobs increase as expected, most of those units should be absorbed.

Some apartment developers have put a number of projects on hold. About two-thirds of the area’s proposed projects are on backburners as developers wait for a turn in market conditions, according to a report from Austin Investor Interests.