WSJ: Austin Apartment Vacancy Surges
April 07, 2009 22:11 Filed in: News
The Wall Street Journal is reporting that Austin experienced one of the largest increases in apartment vacancy rates last quarter among major metropolitan areas. The vacancy rate, which jumped to 9.2% from 7.5%, is both high and rapidly growing -- a major problem for landlords and apartment developers.
The problem with the rental market is rooted in recent history. For a long time, Austin has been one of the strongest rental markets in the country in terms of absorption and rent growth. Even as developers rapidly increased the number of units earlier in the decade, the market remain strong as vacancy rates stayed very slow. When the market run finally ended, Austin developers had a record number of units still in the pipeline. The glut of new units is one of the major drivers behind the high vacancy rate.
This phenomena has played out downtown as well with delivery of the Monarch last year and the upcoming completion of the 36-story 259 unit Ashton at 101 Colorado and 31-story 183 unit Legacy on Town Lake. Making things worse, condo investors in major projects such as 360 are adding their units to the leasing market as well.
With oversupply and more units coming, rental rates are bound to drop. Already, existing and prospective tenants have found lots of room to negotiate as the major projects work hard to fill their units. When rental rates drop, there will also be a small negative effect on the condo market as the equation for condo investors shifts for the worse. With strong restrictions on investors in most new projects, this part of the downtown Austin condo market remains relatively small.
Here is a summary from the Wall Street Journal:
The nation's apartment market deteriorated in the first quarter as rising unemployment dashed landlords' hopes that the housing downturn would create a soft landing by bringing former homeowners back as renters.
The vacancy rate for the top 79 U.S. markets jumped to an average 7.2%, a full percentage point increase over the past two quarters and the highest level since the first quarter of 2004, according to statistics from Reis Inc., a New York real-estate-research firm. . . .
The jump in vacancies came even as landlords reduced rents. Asking rents, which exclude concessions and are often the starting point for rent negotiations, fell 0.6%, the largest fall since Reis began its count in 1999. Effective rents, or the rents that landlords actually collect, fell 1.1% in the first quarter to $984.
Apartment vacancies have edged up gradually since the third quarter of 2006, first as failed condo projects converted to rental units and a supply of foreclosed homes in some housing markets competed for renters. The national apartment vacancy rate rose to an average 6.6% in 2008 from 5.8% in 2006. But a deteriorating job market has accelerated the apartment sector's losses.
Rents fell sharpest in markets that saw heavy job losses in the financial-services sector, posting declines of more than 2% in New York, Long Island, N.Y., San Francisco and San Jose, Calif.
But the brunt of the pain "is still concentrated on those markets that had a serious housing problem to begin with," said Hessam Nadji, a managing director at commercial real-estate brokerage Marcus & Millichap. Rents fell at least 1.5% across all Southern California markets, and 1.3% in Fort Lauderdale, Fla. Most Southern and Midwestern markets also fared poorly.
Still, there were some signs of stabilizing in two markets that were among the first to enter the downturn. Rents increased in Miami and St. Petersburg, Fla., by 0.7% and 0.4%, respectively.
Markets that experienced the greatest increases in vacancy rates last quarter included Austin, Texas, to 9.2% from 7.5%; Fairfield County, Conn., to 6% from 4.3%; and Knoxville, Tenn., to 7% from 5.3%. New York jumped to 3.4% from 2.3% but still has the nation's lowest vacancy rate.
The problem with the rental market is rooted in recent history. For a long time, Austin has been one of the strongest rental markets in the country in terms of absorption and rent growth. Even as developers rapidly increased the number of units earlier in the decade, the market remain strong as vacancy rates stayed very slow. When the market run finally ended, Austin developers had a record number of units still in the pipeline. The glut of new units is one of the major drivers behind the high vacancy rate.
This phenomena has played out downtown as well with delivery of the Monarch last year and the upcoming completion of the 36-story 259 unit Ashton at 101 Colorado and 31-story 183 unit Legacy on Town Lake. Making things worse, condo investors in major projects such as 360 are adding their units to the leasing market as well.
With oversupply and more units coming, rental rates are bound to drop. Already, existing and prospective tenants have found lots of room to negotiate as the major projects work hard to fill their units. When rental rates drop, there will also be a small negative effect on the condo market as the equation for condo investors shifts for the worse. With strong restrictions on investors in most new projects, this part of the downtown Austin condo market remains relatively small.
Here is a summary from the Wall Street Journal:
The nation's apartment market deteriorated in the first quarter as rising unemployment dashed landlords' hopes that the housing downturn would create a soft landing by bringing former homeowners back as renters.
The vacancy rate for the top 79 U.S. markets jumped to an average 7.2%, a full percentage point increase over the past two quarters and the highest level since the first quarter of 2004, according to statistics from Reis Inc., a New York real-estate-research firm. . . .
The jump in vacancies came even as landlords reduced rents. Asking rents, which exclude concessions and are often the starting point for rent negotiations, fell 0.6%, the largest fall since Reis began its count in 1999. Effective rents, or the rents that landlords actually collect, fell 1.1% in the first quarter to $984.
Apartment vacancies have edged up gradually since the third quarter of 2006, first as failed condo projects converted to rental units and a supply of foreclosed homes in some housing markets competed for renters. The national apartment vacancy rate rose to an average 6.6% in 2008 from 5.8% in 2006. But a deteriorating job market has accelerated the apartment sector's losses.
Rents fell sharpest in markets that saw heavy job losses in the financial-services sector, posting declines of more than 2% in New York, Long Island, N.Y., San Francisco and San Jose, Calif.
But the brunt of the pain "is still concentrated on those markets that had a serious housing problem to begin with," said Hessam Nadji, a managing director at commercial real-estate brokerage Marcus & Millichap. Rents fell at least 1.5% across all Southern California markets, and 1.3% in Fort Lauderdale, Fla. Most Southern and Midwestern markets also fared poorly.
Still, there were some signs of stabilizing in two markets that were among the first to enter the downturn. Rents increased in Miami and St. Petersburg, Fla., by 0.7% and 0.4%, respectively.
Markets that experienced the greatest increases in vacancy rates last quarter included Austin, Texas, to 9.2% from 7.5%; Fairfield County, Conn., to 6% from 4.3%; and Knoxville, Tenn., to 7% from 5.3%. New York jumped to 3.4% from 2.3% but still has the nation's lowest vacancy rate.