The outlook for the Austin multifamily market remains strong, bolstered by the city’s vibrant economy, high-growth industries, and many must-see spots.
Ample job opportunities and the city’s overall quality of life are among the many reasons. As a result, stronger household formation is expected to fuel increased absorption, lower vacancy rates, and potential rent growth in the next year, as Lument’s Austin Apartment Market report, produced in partnership with Rosen Consulting Group, details.
As one of the strongest apartment markets in the U.S. in recent years, Austin has more than enough bright spots going forward. Here’s a look at some of the biggest indicators of investment gains for multifamily owners looking for growth opportunities in Austin.
For Austin Multifamily, A Job Market Like None Other
Austin’s employment sector—ranked by The Wall Street Journal last year as one of the country’s two hottest job markets—is a huge boon for multifamily investors in 2024 and beyond.
The city’s job market “expanded significantly” during last year’s third quarter, according to the Federal Reserve Bank of Dallas. As a result, unemployment in Austin fell to 3.4%, below the Texas state rate of 4.1% and the national rate of 3.7%.
Tesla, Austin’s second-largest employer, employs more than 20,000 people at its Gigafactory Texas plant and is working to triple that number as the automotive and clean energy company ramps up its Cybertruck production. That and Austin’s $165 million airport expansion are just two examples of drivers of projected job growth.
As more renters leave the coasts and head south for new opportunities and relatively cheaper housing, Austin remains a prime destination for many in the tech industry and other growing fields. While the vacancy rate in Austin stood at 6.5% as of Q3 2023, largely due to the surge of new apartment units, further job growth will help fuel higher occupancy rates and higher rents.
Investment Opportunities Abound
While elevated interest rates and supply-side risk have negatively impacted investment sales over the past year, Austin’s multifamily market outperformed the national market. Transaction volume in Austin fell by 57% year-over-year in 2023, below the national decline of 65%, according to Lument’s Austin Apartment Market report.
With 48,000 units expected to hit the market by year-end, the professionally managed apartment stock could increase by as much as 20%. That will create additional pain points for multifamily owners, but savvy buyers are more likely to withstand these pain points when it comes to investment opportunities in Austin.
As capital markets continue to flow in the direction of strong demographic fundamentals in secondary markets, this especially rings true for regional mid-market investors looking for growth potential over a medium-term to long-term horizon.
For investors who have been priced out of Austin in recent years, 2024 offers a window of opportunity to leverage the small value dip brought on by oversupply.
Understanding the Financing Equation
Financing for multifamily assets in the Austin market remains ample in 2024, though buyers and owners of properties looking for agency financing will need to prepare for potentially longer approval periods.
A key question looking ahead is: How much default activity will the Austin market see in the year ahead and will it be enough to significantly lower asset prices?
While that remains to be seen, mid-market investors could find even greater upside gains if the market dips further in 2024. That, of course, is only in the worst case.
Contact Lument today to find out more about the latest market opportunities from our Texas-based loan originations and real estate investment sales teams.
