Rental rates in Austin remain the highest in the state. The average rental rate is $832, or $0.98 per square foot. Over the trailing 12-month period, rates have increased an impressive 5.3 percent. During the same period last year, rates decreased 5.1 percent. Most experts forecast rental rates to continue increasing on an annual basis in the 3 percent to 4 percent range. While rental rates are certainly impressive, occupancy throughout the market did not disappoint either. Currently, Austin’s occupancy stands at 93.6 percent, an increase of 4.5 percent in the trailing 12-month period.
One factor fueling these impressive numbers is Austin’s development pipeline, which reached historical lows thanks in part to the tightening of the credit and debt markets. Currently, some 3,000 units remain under construction with delivery of all units expected in 2011. Absorption has picked up steam, and as demand outpaces supply, developers are showing interest in Austin once again. There are 2,617 units currently approved for construction (though placed on hold). In addition, there are another 3,178 units that have been submitted for building permits. Some of these units will break ground over the next 12 to 24 months, as developers again feel confident in delivering units to the improving Austin market.
A NEW KIND OF DEVELOPMENT
The only thing that might dampen Austin’s charge out of the recession is the massive amount of new supply recently added. At its peak in 2008, the development pipeline contained more than 17,000 units physically under construction. At the time, many remained skeptical of Austin’s ability to absorb these units. But the units, which expanded the existing apartment stock by more than 10 percent, were absorbed, leaving developers and investors alike amazed.
The catch was the type of product. From 2006 to 2010, Austin developers focused on growing inward, looking at Austin’s core submarkets. This sparked numerous debates at several local city council meetings regarding the elimination of what was perceived as affordable housing in Central Austin, but prudent developers eventually prevailed and introduced the market to mid-rise podium and wrap-style development with market rents pushing $1.70 per square foot.