Austin Texas Apartment Market Report
2010 AUSTIN APARTMENT REVIEW
JANUARY 2010
- Occupancy Increased Minimally Year-Over Year
- 4th Quarter Saw Large Decline in Effective Rents
- Fundamentals are Strong and Jobs Continue to Increase
Not surprisingly, August is a big month for the multifamily industry in the Austin area. With all the new leases for incoming students, we usually see impressive numbers for that month. And 2009 followed that pattern as well. After all the new leases in late summer we normally see a slow but steady fall off in occupancy through the fourth quarter. 2009 broke from that pattern, however. In a recession as deep and widespread as this one has been any good news is as refreshing as it is surprising!
The Overall Occupancy Rate finished 2009 at 89.1%, up 0.1% for the year. As late as May of last year, that figure had fallen to 86.9%, but
rose as much as 2.5 percentage points by November, before it fell slightly at the end of the year. Rents, however, did not follow this trend.
The Overall Effective Rental Rate dropped $39 over the year to finish 2009 at $788 per month. Although steadily decreasing throughout the
year, the decline gained momentum during the 4th Quarter, where $31 of this drop occurred. in the Austin area but whereas Occupancy
managed a slight improvement, it was accomplished at the cost of rental rates.
As recently as the beginning of last year, Austin was not known as a concession-prone market. At that time, only about one in four properties offered an advertised concession, and that averaged only about 2.5 weeks free on a 12-month lease. Today, 54.6% offer concessions and they now average over 4 weeks free.
In fact, the majority of the reduction in Effective Rents came by simply lowering Asking Rents, rather than by offering additional rental concessions.
Nearly 5000 new units were added in the area over the last year. Lease up rates have been fairly strong. For Same-Store Occupancy
Rates, they have only lost 0.9% over the year, even with all the new product hitting the market. This signifies a pretty healthy ability to absorb
this new product.
Unlike most places around the country, Austin has been experiencing job growth throughout this past year. At the beginning of the year,
there were 827,573 people employed in the area; by November, that figure had climbed to 843,093. The Unemployment Rate rose from
5.2% to 6.9% because of more people looking for jobs, but job growth still occurred in 8 out of the 11 months (through November, the latest figures available from the U.S. Bureau of Labor Statistics).
There are more new units still in the pipeline as well as new projects being announced with expectations to begin construction early this year. Austin, however, is not experiencing the overbuilt conditions seen in many other Texas markets, so we should be able to handle these as they come on board. With the job market looking better, the fact that Austin never got hit too hard with this recession and that the fundamentals are in better shape here than in most places, the multifamily industry in Austin should look forward to a good year ahead.
ALN Apartment Data
Austin Market
General Overview Dec 2009 Annual Change
Occupancy: 89.1 0%
Units Added: 4,520 - 48.5%
Units Absorbed (Annual): 4,039 +110.6%
Average Size (SF): 849 +0.5%
Asking Rent: $826 -4.3%
Asking Rent per SF: $0.97 -4.8%
Effective Rent: $788 -4.7%
Effective Rent per SF: $0.93 -5.2%
% Offering Concessions: 55% +12.4%
Ave. Concession Package: 7.7% +10.6%
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North American Properties plans to build a mixed-use project with 343 apartment units
Town center concept planned for Round Rock's La Frontera
A proposed "town center" in the La Frontera development is expected to be the most dense -- and the first -- vertical mixed-use project in Round Rock.
North American Properties Inc. has about 9 acres under contract at the southeast corner of Hester's Crossing and La Frontera Boulevard. The seller is 35/45 La Frontera LP and is located across from the Austin Marriott North at Round Rock.
North American Properties plans to build a mixed-use project with 343 apartment units above 50,000 square feet of other uses such as retail, restaurants and offices. The project will range from 1 to 4 stories tall.
The project is being spearheaded by Mike Pacillio, a partner with North American Properties who works in the company's Plano office. A name for the project hasn't been chosen, although a site plan filed with the City of Round Rock calls it La Frontera Square.
Pacillio says he liked the La Frontera property because it's already a mixed-use project and it will benefit from new toll roads.
The La Frontera project marks Pacillio's return to the Austin market and his first project in Round Rock. While with Dallas-based apartment developer Ewing Properties, Pacillio helped develop two high-end apartment complexes in Austin -- Los Arboles and Rancho Las Palmas. Those properties later were sold to Summit Properties Inc., which renamed them Summit Arboretum and Summit Las Palmas. The properties are now are controlled by Equity Residential under the names The Arboretum at Stonelake and River Stone Ranch.
Vining also says the project is on track to be Round Rock's first project featuring apartments stacked on top of other commercial uses. It will be "the most dense project in Round Rock," he says.
Atlanta-based Cousins Properties Inc. recently bought 45 acres on the south side of SH 45, with plans for either a retail or mixed-use project. An additional 43-acre tract along the SH 45 frontage, zoned for 1.8 million square feet of offices, is on the market.
La Frontera is a 328-acre mixed-use development at I-35 and State Highway 45 North. It is home to more than 880,000 square feet of retail space, with more than 60 stores and restaurants. It also features 2 apartment complexes and two office buildings.
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Downtown tower in the works
The developer of Kyle's Plum Creek is planning a $50 million to $100 million project on one of the last remaining undeveloped lots along Congress Avenue in downtown Austin.
Benchmark Development Inc., an Austin-based subsidiary of Spanish real estate company The Villar Mir Group, purchased roughly a third of a downtown block at the northwest corner of Second Street and Congress. The company plans to develop a mixed-use tower, with 200 to 250 luxury condominiums, as well as a spa, fitness center and pool. The project might include retail and office components.
"We think this location really commands a premiere, high-quality project, and we're going to do everything we can to make Austin proud," says David Mahn, vice president of Benchmark Development. "This is a great opportunity for us. A Congress address is something that's very special." Mahn says the luxury project will target the upper end of the downtown market.
Four or five architecture firms have decided to participate in a design competition for the new tower, Mahn says. He expects to decide on a winner in March. Part of the planning process will include coming up with an appropriate name for the project, he says. To maximize density, Benchmark Development intends to ask for a variance from the City of Austin. The site is governed by Central Business District zoning, which allows a floor-to-area ratio of 8-to-1. Because the land is roughly 29,000 square feet, Benchmark Development can build a 232,000-square-foot structure. The variance would let Benchmark go beyond that square footage.
Mahn says greater density is appropriate for the location and fits the city's goals for downtown. "The city has previously has granted variances, and we hope they will give our project careful consideration," Mahn says. "There's a lot of excitement in the downtown area -- the Second Street corridor is an area the city has targeted for lots of retail development," Mahn says. "We believe our location is going to be right in the heart of that corridor."
He anticipates filing plans with the city in second quarter of this year and breaking ground about a year after that. Construction is expected to take two years.
Heimsath, a longtime observer of the local real estate market, says he doesn't think there's reason to be concerned about the high number of condo projects planned for downtown. The market can absorb about 200 to 300 units a year, he says.
"My general sense about the downtown condo market is that while there are many projects in the planning stage, each project seems to have a different character and is addressing the market at a different price point with a different location," Heimsath says.
This will be Benchmark's first local high-rise, but the company has a long history of development in the region.
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