November 20, 2024

Austin Multifamily Market Conditions Steady a Bit in Q3 2024

Q3 2024

Operating conditions in the Austin multifamily market improved in recent months after property fundamentals had softened during the first half of 2024. Prior to the third quarter, vacancy had been climbing for the past two years, as elevated supply growth has been applying upward pressure on the vacancy rate. Improved renter demand in recent months led to the first quarterly vacancy improvement since the second quarter of 2022. Area vacancy inched lower by 10 basis points in the last three months to 9.6 percent. A steady pace of renter demand has also allowed for some stabilization in rental rates, but with vacancies still about 400 basis points higher than the market’s long-term averages, competitive pressures still drag on rents. New projects continue to come online at a rapid clip, as more than 14,000 units have been delivered to this point in the year.

The number of sales that have taken place to this point in the year in Austin is modest compared to recent years, as multifamily properties have been trading at a slow but steady pace since the beginning of 2024. Austin is one of the many high-growth Sunbelt markets that is being impacted by a steep acceleration in new supply, and investors are taking a cautious approach to new acquisitions until conditions stabilize. In transactions where pricing was available, the median price year to date has been $193,500 per unit, down 9 percent from last year. Cap rates have inched higher, but have not posted steep increases, averaging about 5 percent.

Looking ahead

Property performance in the Austin multifamily market is likely to soften through the final months of the year as new supply continues hitting the market in large numbers, with projects totaling an additional 3,600 units scheduled for completion in the fourth quarter. However, recent stabilization in rents and vacancies suggest that much of the competitive impact from new construction has already been factored into performance, and operating fundamentals at the market level could level off in the coming quarters. Vacancies are forecast to end the year at 9.8 percent, considerably higher than long-term averages, but just 20 basis points higher than current levels. Current rents may prove tougher to maintain, although the region’s strong employment growth among high-wage sectors and continued renter demand will counter some of the supply-side pressures.

The uncertainty surrounding the rapid supply growth has weighed on multifamily investment conditions in Austin to this point in 2024, but the market is showing signs of stabilizing, which should ultimately translate to a more active investment climate. Supply growth has been one of the primary factors that has impacted investor sentiment in recent years, but the development pipeline will begin to thin through the remainder of this year and throughout 2025. Looking further out, the outlook brightens; multifamily permitting across the Austin region is on track to post the lowest numbers recorded since 2019, suggesting that the pace of deliveries will begin cooling in 2026. Cap rates have inched higher to this point in the year, but the area’s strong growth profile has limited upward movement and anticipated declines in interest rates could support flatter cap rates going forward.