The multifamily industry has been posting demand and rent gain numbers not seen in more than a decade through the first half of 2021. Florida markets have been especially strong, as well as areas like Phoenix and Boise. Another stand out market has been Austin.

As always, numbers will refer to conventional properties of at least 50 units.

New Supply and Net Absorption

New supply through June was higher than in recent years, with almost 7,500 units delivered across the Austin market. The San Marcos – Buda – Lockhart and 290 – East Austin submarkets were the areas with the most new supply – each added more than 1,100 new units. In all, 13 of the 23 ALN submarkets for Austin added new units to some extent.

While new supply has been higher than in the previous few years, apartment demand has overperformed by a much wider margin. Net absorption of around 9,800 units through June of this year was not only well beyond the approximately 1,600 net units from the same portion of COVID-affected 2020 but was 80% higher than the 2019 total as well. The closest the area had gotten to this year’s absorption number at mid-year going back more than a decade was about 7,400 net absorbed units in the first half of 2013.

Notably, apartment demand has been higher across all four price classes compared to the same portion of 2019. Absorption totals were also more evenly distributed across the classes than in recent years. No price class absorbed less than 1,000 net units in the period, and the Class C subset led the way with almost 4,100 previously unoccupied units being leased.

The net result of the new supply and realized apartment demand was a 1.5% increase in average occupancy to close June at just over 90%. The occupancy averages at the submarket level did reflect more bifurcation, with five submarkets closing June with an average of 95% or more and four submarkets ending the month with an average of 85% or less.

Average Effective Rent and Lease Concessions

The most eye-catching data point for the Austin market through the first half of the year was average effective rent growth. A 12% gain in the period brought the average unit to $1,419 per month. Austin has retained the top spot among Texas markets for highest average effective rent since unseating Midland – Odessa in 2019.

As with apartment demand, it has not been the case that only one or even two price classes predominantly drove the results. Each of the top three price tiers surpasses the market-level gain of 12% led by a 16% increase among Class A properties. Class D, though not nearly as substantial relative to the other tiers, saw appreciation of just below 6% in the period.

Average market rent rose by 10% through the first half of 2021, so rent growth was largely driven by increased aggressiveness on the part of operators. However, a reduction in lease concessions was another contributing factor. A 50% decrease in discount availability from the start of the year brought the share of conventional properties offering a lease concession to just over 18%. This was exactly the same level of availability as at the close of June 2019 and was well below the 27% of properties offering in June of 2020.

The average discount package declined by 18% through the first half of the year to close June at a little less than three weeks off an annual lease. As with concession availability, this was almost exactly the average value from June of 2019.  Each submarket managed declines in discount availability, but six of the 23 submarkets saw increases in the average discount value. Unsurprisingly, the Downtown and UT Area – West Campus areas stood out with average concession value increases of 34% and 30% respectively.

Takeaways

For the most part, the multifamily industry has enjoyed a robust rebound so far in 2021. Far from being excluded from that rebound, Austin has been one of the leaders in terms of demand growth and rent gains. The fact that net absorption increases were clear across the price classes was encouraging because there were markets being driven mostly by gains in either the top or bottom half of the market. Even so, Class C absorption was the clear leader.

On the rent front, concessions have returned to the pre-pandemic levels from June of 2019 both in terms of availability and average value. Rent growth has been dazzling across the board, not just at the top of the market. However, double digit increases in six months for the state’s most expensive market has implications for affordability – especially after a 13% Class C gain.

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