Growth in Austin Continues and New Challenges Arise

April 11, 2021

Written by

Josh Will

Q1 2021 Austin Multifamily Demand, Business Move-ins, and Supply-Side Pressure.

Austin is attracting business from across the country and growing from within. Last year, 45 companies from out-of-state announced plans to relocate to Austin alongside more than 100 locally-based firms that voiced a desire to expand. The most notable commitment came from Tesla and work is already underway on a Gigafactory near the Austin-Bergstrom International Airport that will employ an estimated 5,000 people.    

We are still seeing the leisure and hospitality sector hit hard by the pandemic, down 27,400 positions annually at the end of last year. The vaccine rollout should help recover more of these jobs in 2021, allowing the Austin economy to accelerate into a new growth cycle. 

Fundamentals pressured by development pace. Construction will encounter additional headwinds this year despite sturdy demand drivers. Vacancies in the market grew by more than 4,600 units last year and this overhang will be exacerbated by a sizable pipeline. 12 of the metro’s 13 submarkets will add at least 500 units to inventory in 2021, led by east Austin where 3,000 doors are slated to finalize. The Tesla Gigafactory should eventually underpin rental demand in the area, but east Austin faces near-term challenges after the submarket’s vacancy rate jumped 260 basis points last year to 8.0 percent. Metrowide, displacement from the winter storm damage could also push up vacancies in 2021. 

*Sources:  Real Page Inc. ,CoStar Group, Marcus & Millichap  

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Construction:

  • 9,923 Units were completed in 2020, a three year high, expanding inventory by close to 4%
  • Cedar Park led the way with 2,500 units completed in 2020. This led to an increase of 18.4% of inventory in the submarket.

Rents:

  • There was a decrease of 4% in average rent across all of Austin in 2020.  This is the first time this number has decreased since 2009.
  • Hardest hit was the urban core (Downtown) which fell 10.8% Y-O-Y.

Multifamily 2021 outlook

*Source:  Marcus & Millichap

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