MULTI-HOUSING MARKET
The Austin multi-housing market continued to see high rental rate growth in 2007 with net effective rents finishing the year at $0.96 per square foot compared to $0.91 in 2006. Rents have grown for eleven consecutive quarters in the Austin metropolitan area. Citywide occupancy finished the year at 93.48% which is a year-over-year increase of 5.2% in effective rents and 0.26% in occupancy. The rental increase was achieved primarily through the continued burn-off of concessions, with the cost of concessions at $0.03 per square foot in 2007 versus $0.06 per square foot in 2006. Class A concessions still lead the market with a $0.07 per square foot difference between market and effective rents. The Class B concession differential has shrunk to $0.03 per square foot, and the Class C concession differential was a nominal $0.01 per square foot. Current effective rents remain well below historical trends and with projected job growth of 3% and slower homes sales, the likelihood of 4.5% to 6.5% same store effective rental rate growth over the next three to four years is very high. Owners are focusing on value-add repositioning of all classes of properties in order to capture rent growth above the market recovery levels.
Absorption in 2007 was estimated at 1,464 units versus net new supply of 1,904 units. More than 13,000 units were estimated to be in the pipeline at the end of 2007. With approximately half of these units scheduled for delivery in 2008, the new supply’s impact on the market will be nominal and largely isolated by submarket. The majority of the new supply is along the IH-35 corridor in the north and far south Austin. The premium submarkets along and to the west of the Mopac Expressway corridor have very little new development in the pipeline. Rents in these preferred higher income submarkets are anticipated to grow well above the market average, particularly for communities that have been updated with new interior finishes.
Rents in these preferred higher income submarkets are anticipated to grow well above the market average, particularly for communities that have been updated with new interior finishes. The cost of new construction has continued to increase and generally exceeds $105,000 per unit for suburban garden product. Development proformas require stabilized effective rents of approximately $1.10 per square foot at today’s costs and interest rates. This high effective rent will serve as a benchmark for existing properties to continue raising rents. The Austin multi-housing investment market continued to be a popular market for investors with 82 properties sold in 2007 and an estimated average price per unit of $83,612. Average sales price for Class A, B, and C properties were $93,110, $47,436, and $30,637 per unit, respectively. Capitalization rates were consistently around 4.75%-5.25% on Class A sales, 5%-5.75% on Class B, and 5.5%-6% on C product. Despite the current challenging lending environment, the expected trend for 2008 appears to be strong. (CBRE.COM)