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Rents rising: Austin apartment market shifts into overdrive as pandemic recovery continues

Shonda Novak
Austin American-Statesman

If you rented an apartment in the Austin area when the coronavirus pandemic hit last year and are renewing your lease now, you likely could be facing sticker shock, with potential rent increases of up to a few hundred dollars, apartment locators say.

That's because the Central Texas market — which took a hit during the early days of the pandemic — has bounced back.

Apartment rents and occupancies are on the rise again, and leasing activity on an annual basis is at its highest level in 15 years.

That's according to real estate consultant Charles Heimsath, who for several decades has been tracking the apartment market in the five-country region from Georgetown to San Marcos.

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Work continues on Trammell Crow Residential's Alexan Riverside project, an apartment compex that will add 308 units to the booming East Riverside corridor. Apartment rents and occupancies are on the rise again in the Austin metro area, and leasing activity on an annual basis is at its highest level in 15 years.

Fueled by factors including the region's ongoing job and population growth and sharply rising home prices, the first six months of this year have seen tenants gobble up apartments at an "astounding pace," said Heimsath, who is president of Austin-based Capitol Market Research.

Heimsath said the Austin-area apartment market "absorbed more units in the first half of this year than we have in any other 12-month period" over the past 15 years.

Natalie Young, the manager of  A+ Apartment Locators in Austin, has seen the seismic shift play out.

Young recalls the "initial shock" the pandemic brought to the area's apartment market, including "significantly lower rents" and plenty of move-in specials and other concessions.

These days it's a different story, with the market having turned dramatically.

"The market has done a 180" since the pandemic began, Young said. "It's the exact opposite now."

With escalating rents and a short supply of apartment units that are ready to move into, some prospective renters are frustrated, she said.

"I've been doing this in Austin for 16 years and it is the tightest market I've seen," Young said. "Things have changed drastically since last year, while we're still in the middle of the pandemic. It's nuts."

While thousands of units are under construction (industry market reports vary from 27,500 units to more than 39,000 units) — and many more are in the pipeline or ready to break ground (36,500 by some estimates) — "they just aren't finishing quickly enough," Young said.

"We just don't have enough apartments for quick move-ins, and that's what people are looking for," Young said.

The 27,500 figure of under-construction units is from property management software provider RealPage Inc. 

Of that number, 18,000 units are due to be completed in the next 12 months. That would expand the Austin market’s inventory by 6.9%, which would be among the fastest growth in the nation, according to RealPage.

 "Austin is one of the country’s hottest real estate markets and has seen remarkable household formation across all housing types," said RealPage market analyst Adam Couch. He said the Austin market "has done well in terms of getting employment back to pre-pandemic levels. Looking ahead, Austin will remain a hotspot for renters and developers. Performance will outpace the national norm with units remaining around the fully occupied mark."

Apartment rents and occupancies are on the rise again in the Austin metro area, and leasing activity on an annual basis is at its highest level in 15 years.

Can't afford to buy in Austin area

It's not just more people and jobs driving demand for apartments.

Another major factor is the "extraordinarly high price of housing," Heimsath said. Some residents who might prefer to purchase a home simply can't afford to do so, and have to rent.

"At some point the price of homes gets to be too high for people to budget for, even with low interest rates," Heimsath said.

In the Austin-Round Rock metro area, the median home price continues to set records, according to the Austin Board of Realtors. In July, half of the houses that sold in the Austin region went for more than $480,000 and half for less. That was a  jump of 37.1% from July 2020, the board said. Inside Austin's city limits, July's median home-sales price hit $574,975, which was a 37.6% jump over July 2020.

The thousands of new apartment units under construction "will likely provide some relief" for renters, but things likely will play out "similar to the single-family market – prices won’t come down, but the market will behave a little more 'normal' moving forward," said Sam Tenenbaum, director of analytics in Central Texas for CoStar Group, a real estate data company.

In fact, residents who are renting now and hoping that home prices will go down are likely to be disappointed, Heimsath said. 

"I don't think that's going to be the case. The rate of (home price appreciation) will slow, but absolute declines in prices are highly unlikely," he said. "Somebody who sells thinking this is the top of the market, unless it's a necessary lifestyle choice, is pursuing a fool's errand."

Apartment rents and occupancies are on the rise again in the Austin metro area, and leasing activity on an annual basis is at its highest level in 15 years.

Rents, occupancies climbing in Austin

In Heimsath's June survey, monthly rents across the region, for all apartment unit sizes,  averaged $1,411. That's a 6.1% increase over June of 2020, and up 7.4% from December to June, Heimsath said.

Rents for one-bedroom units averaged $1,250 a month in June, which was up 7.6% from $1,162 in June of 2020, Heimsath said. Rents for two-bedroom units in June were $1,556, on average, a 6.9% increase from $1,455 at mid-year 2020.

On the occupancy side, units across the Austin region were 93.2% full on average in June, compared with 91.5% occupied at the end of June 2020. The national average for apartment occupancy is 96.5 percent, a more than 20-year high.

Heimsath said one of the most interesting trends in his latest survey was the feverish leasing pace.

In the first half of this year, tenants have leased about 11,540 units (that's a net figure, including move-ins and move-outs) -- or just over 1,900 units a month.

At the peak in 2018, just over 11,300 units were leased all year (on a net basis) -- or 942 units a month, Heimsath said. "We're absorbing twice as many units a month as we did at the peak in 2018," Heimsath said.

"The most astounding thing is, it's playing out across the region," from Central Austin to the suburbs, he said.

Work continues on Trammell Crow Residential's Alexan Riverside project, an apartment compex that will add 308 units to Austin's East Riverside Drive area. Apartment rents and occupancies are on the rise again in the Austin metro area, and leasing activity on an annual basis is at its highest level in 15 years.

'Bullish on Austin'

As residents continue to move into Austin, apartment companies continue to race to try to fill the demand.

One new project in the works is Trammell Crow Residential's Alexan Riverside apartment complex, which is at East Riverside and Royal Crest drives.

The complex will bring 308 apartment units to the booming East Riverside corridor, which continues to see a surge of residential and office development, including software giant Oracle's headquarters campus.

Alexan Riverside should be ready for residents during the first quarter of 2022, said Matt Enzler, senior managing director with Trammell Crow Residential. The project is due to be fully completed by the end of next year, he said.

Monthly rents, while subject to change, are expected to range from $1,500 for studios, and up to $3,000 for large two bedrooms. 

And Trammell Crow Residential has even more apartments planned for the area. The company has purchased adjacent land where Family Dollar and other strip-mall retail is located, Enzler said. There, Trammell Crow will start on a second phase of the Alexan project in the next 30 days. The new 300-unit phase will also be in a seven-story building, and rents are expected to be similar to those in the first phase, Enzler said. 

"We continue to be bullish on the East Riverside corridor with continued job growth (Oracle), proximity to downtown and East Austin, access to the hike/bike trail along the lake, additional retail/restaurant options for residents, and the announced Capital Metro light rail," Enzler said.

'Firmly in favor of landlords'

As the apartment market remains tight, that is resulting in higher costs for Central Texas renters, according to industry experts.

The market today is "firmly in favor of landlords," said Tenenbaum, of CoStar Group.

"Vacancies have fallen 4% since the start of the year (from 10.4% to 6.5% today) on the heels of the most demand for apartments Austin has ever seen in an eight-month window," Tenenbaum said. 

"That means that landlords have raised the rent substantially – that’s no surprise to any renter right now," Tenenbaum said.

Over the past year, rents are up by about 20%, or about $250 per month, and are 17% above pre-pandemic levels, according to CoStar.

Young, with A+ Apartment Locators, said she is seeing renters being hit with "significant increases" when their leases renew, compared to the rents that were offered last year when the pandemic started.

Shannon Hodges, a teacher in the Round Rock school district, experienced just such an increase for a two-bedroom apartment she and a roommate rent at the Domain in North Austin.

Hodges said they were facing a $564 monthly increase but were able to negotiate it down to $464 a month.

Their rent previously was about $1,850 month, with each paying roughly $925, Hodges said. With the increase, plus a new $15 monthly charge for mail delivery, their monthly rent will climb to almost $2,400, with each paying about $1,200 a month.

"Even with a roommate it costs me half of my monthly teacher's salary to pay my rent," Hodges said, although she estimated she saves $250 a month in utilities by having a roommate.

Hodges, who also is a part-time as a real estate agent and has worked in the rental market for the past eight years, said: "This is the worst I've seen in terms of the monthly rent increases on the renewals."

Between her teaching and real estate jobs, Hodges said her annual income is about $77,000. And yet she said home ownership is still out of reach for her.

"If I did not spend a single dollar out of my teacher's salary (about $53,000), and took out a loan, it would still take me two to three years to buy a starter home," Hodges said. "So I have no choice but to rent."