Here are the 15 U.S. submarkets posting the deepest rent cuts right now among market-rate apartments. It's an interesting -- if not entirely unsurprising -- with one metro area claiming NINE (9) of the top 15 spots.
You probably don't even have to look at the list to know that it's Austin. Right?
I get asked about Austin a lot these days. Why are rents there falling so much more than its peers?
Is it because of weak demand? No. Don't believe the hype. I've seen those headlines. The one about the so-called boomerang of tech workers from California who relocated to Austin and now moving back west. The one about how supposedly no one is moving to Austin anymore. The one about how people moved to Austin not realizing how hot it is, and don't like it anymore.
It's not a demand issue or a population growth issue or a jobs issue. Sure, it's not 2021 anymore. The tailwinds have moderated/normalized. But Austin hasn't lost its swagger.
Right now, rent cuts have everything to do with supply. Six of Austin's 16 submarkets grew their apartment stock by a 10%+ over the last 12 months -- which is massive. Seven still have at least 2k+ units under construction, and another four have 1-2k units under way.
What people sometimes forget about Austin is that it's still a one-highway city. It's a smaller geographic area, which means supply in one neighborhood is more likely to impact rents in another. It's just a smaller, still-maturing market vulnerable to boom/bust swings. Some Austinites don't like this analogy, but it's still a younger sibling to Dallas prone to volatile mood swings. But it'll keep growing up, and eventually grow out of it.
Austin has added more new apartment renters since COVID than any U.S. metro area other than big siblings Dallas/Fort Worth and Houston. And since 2010, Austin's population of young adults (ages 20-34, prime apartment renting age) has grown at the second-fastest rate in the country, behind only Provo. And while its job market has cooled off of late due to its reliance on tech, it's still solid.
But it's still not enough to keep pace with an absolutely ridiculous volume of new supply, ranking tops nationally relative to size. It's just gonna take time to work through so much supply. And that'll mean continued downward pressure on rents for the near term -- both new leases and renewals in much of the market.
The other thing to remember about Austin is that more than 60% of its apartment stock has been built since 2000. That's a very high share, and it means your typical, Class B product is still relatively new/nice -- and with price spreads tighter than other metros ... and that means Class B/C renters are more easily able to move up to newer lease-ups than in other metros, which in turn means deeper B/C rent cuts, as well. In other words, the "filtering" effect can play out much faster here.
Short term: Austin will be challenging.
Long term: Austin will be just fine.
#multifamily #apartments
