A sign outside REVL Apartments in late January. DAVE CREANEY

Austin Business Journal reports, "Austin’s multifamily market is oversupplied again, and with the switch in cycles come deals for renters.

The area has seen a steady drop in rental prices through recent months, with the median rent at the end of 2024 about 5% lower than at the end of 2023. The drop comes after the pandemic supercharged both Austin’s growth and cost of housing as many people relocated to the city for its warm weather and quality of life — which when paired with historically low interest rates encouraged a building boom in the area.

“The market was so good in 2021 and 2022 you saw record rent growth, over 20% rent growth,” said Patton Jones, vice chairman of Newmark’s Central Texas office, who oversees the firm’s multifamily capital markets team for Austin and San Antonio. “You had post-Covid, huge in-migration, huge employment growth. Austin was the hottest city in America.”

That focus on Austin helped bring in many developers and investors, which resulted in a building boom in the city. During 2024, about 32,000 rental units were delivered to Austin and in 2023 about 21,000 units were delivered, according to CoStar data. Those years far outpace the last pre-pandemic year of 2019, when just over 10,000 units were delivered.

Recently, no other multifamily developer has put more units on the ground or on the drawing board than Journeyman Group, according to ABJ's most recent list of Austin multifamily developers.

The influx of rental units has helped drive the cost of rent down in Austin. Data from CoStar shows that average asking rent in Austin dropped by 4.6% in the last quarter of 2024, and the average rent in the metro was $1,580. For comparison, in the last quarter of 2021 the average asking rent was $1,674, which represented a 15% increase from the previous year.

The addition of units and falling rents has also caused vacancy rates in Austin to rise. At the end of 2024, the vacancy rate was 15.2% and at the end of 2021 the vacancy rate was 6.5%. 

The rise in vacancy helps spur an overall decrease in rent prices and spurred concessions from building owners, including months of free rent to get leases signed, said Israel Linares, a senior market analyst for CoStar. 

“As there are more options available to renters, owners have had to adapt to that new environment, and have had to remain more competitive, and have had to lower average asking rents,” Linares said. 

How long can rents drop?

Austin is seeing some of the steepest rent decreases in the nation — partly because rents rose so dramatically during the pandemic. A report from Realtor.com shows Austin’s 5% year-over-year rent drop in December was the third-largest decline among the top 50 metro areas in the country. Only Memphis, which had a 6.7% rental drop, and Denver with a 5.9% rental drop, topped Austin. 

CoStar forecasts that Austin's rental rates should still decrease year-over-year throughout 2025 and the rent decreases should be around 4.3% in the first quarter of the year and may finish around 1.4% lower by the end of 2025. Rents are expected to go back to rising in the second quarter of 2026. 

Jones, of Newmark, also said he expects that rents won’t start rising again in Austin until 2026 because there are about 21,000 units under construction in the area that could be delivered in the next year. But after those 21,000 units are delivered, Jones said, the pipeline of new apartment buildings “falls off a cliff."  

“We expect to go from being oversupplied to undersupplied, possibly even going into a housing shortage,” Jones said. 

That's becoming more of an issue for Austin, which in recent years went from being a city dominated by homeowners to one heavier on renters.

What are investors interested in?

Linares said new apartments probably won't be popular developments to start due to the current costs of construction and interest rate levels that have made it harder to get institutional and equity investors interested in new build projects. He said most investors looking to get a foot into the Austin market will likely prefer buying an existing multifamily property instead of building a new one. 

“It's much more favorable to acquire an existing property that's newer and has a high occupancy than actually take on the risk of building a new project from the ground up,” Linares said. 

But even with a drop in rent prices and macroeconomic trends discouraging new builds, Jones said a few “contrarians” are still planning to start some new multifamily projects in the short term and Austin is still seen as a great market for long-term multifamily investments. 

Austin "is one of the most popular markets because the long-term growth and trajectory for Austin looks awesome, and most buyers want to buy the dip,” he said. “Everyone is looking to avoid selling in the downturn, and buyers are everywhere.”

CoStar expects Austin’s asking rent to average $1,557 at the end of 2025, which still puts Austin’s rental market in line with the pre-pandemic market because the average asking rent in the first quarter of 2020 was $1,459. 

Although Austin’s rental market still has long-term promise for investors and developers, overall market trends may cause continued concern about the area’s availability of affordable housing. That's because — even with the drop in rental prices in recent years — housing affordability remains a drag on Austin’s economy and potential for growth."

 

Source: Austin Business Journal 

Written by: Sean Hemmersmeier

Published: January 24, 2025

Posted by Grossman & Jones Group on

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