Austin Multifamily Market Report

Market Overview

Austin remains one of the fastest-growing metro areas in the country. That being said, growth in the city is beginning to cool in 2024. The city still benefits from favorable tax policies and  steady influx of new workers from the University of Texas at Austin. In 2021 and 2022, job growth in Austin frequently outpaced national levels by 400-500 basis points. This is among the highest of any major metro area in the country.

However, by the third quarter of 2024, job growth slowed to just 1.6%, only 10 basis points above the U.S. average. This decline is largely driven by national trends in technology-related employment. Once interest rates decline and businesses find it easier to access capital, tech employment trends are expected to rebound. In the meantime, Austin faces slower growth just as it finalizes the largest construction pipeline in its history. Ultimately, contributing to a rise in apartment vacancies despite the city’s strong demand drivers.

Austin Multifamily By the Numbers

Last 12 Months | Source: CoStar Group

Highlights

• There are approximately 23,000 units underway, down from 54,000 units at the start of 2023.
• Areas proximate to downtown and its immediate eastern and western suburbs will face the strongest pressure from new supply still in the pipeline.
• While the entire metro recorded -4.6% rent growth in 3Q, Central and Downtown Austin are recording rent changes close to 0.0%, highlighting the areas’ high demand nature.
• Vacancy is expected to peak around mid-2025, at which point new tenants are expected to backfill spaces that emerged during this construction cycle.

Market Performance

Additional supply pressures have continued to cool Austin’s apartment market. Vacancy has risen by 80 basis points from the second to the third quarter. The current 15.3% vacancy rate is the highest the city has seen in over a decade. Fortunately for investors, Austin’s robust ecosystem of technology-related employers is expected to support continued in-migration and job growth throughout the rest of the decade. Although recent rent declines of nearly 5% reflect a near-term oversupply, average rental rates remain 10% higher than in 2019. Ultimately, underscoring the rapid rent growth experienced in 2021 and 2022.

With construction activity set to taper off in 2025 and 2026, vacancy rates are expected to stabilize. This will potentially allow for rent growth to return to positive territory next year. While the current trends appear challenging, Austin’s apartment market is positioned for growth in the coming years. The metro area will likely need additional units by 2030 to keep pace with demographic growth and the expansion of high-income employers.

Sales

Austin’s multifamily market has experienced a cooling trend, with sellers adjusting pricing to align more closely with buyer expectations. In 2024, fundamental weaknesses have dampened investor interest in the city’s apartment sector. However, as performance trends stabilize, capital inflows into Austin are expected to rebound swiftly. Per-unit pricing has decreased from an average of nearly $275,000 to just under $220,000. While still above pre-pandemic levels, this reflects a market correction. Interestingly, rent growth during this period has led to cap rates rising above their pre-COVID values. With national economic conditions at a turning point, now may be an opportune time for investors to consider adding Austin units to their portfolios.