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Market Overview
South Central Austin compromises the 78704 zip code, which has quickly become one of the best areas to live in Austin. Once an inactive neighborhood with mostly used car lots, South Central Austin has since become lively, which has caused multifamily developers to build in the area over the past decade. The development has slowed in the area due to rising land costs, which has forced many developers to look further south into South and Southeast submarkets for a better yield. South Central Austin is now the heart of Austin’s tourist corridor, and smaller companies like Sonder and the Guild leased larger blocks of units. However, these units have primarily gone unused during the COVID-19 pandemic. South Central Austin boasts high rents, although they are still $1,000 cheaper than Downtown Austin. Among submarkets with more than 4,000 units, South Central Austin has the second-highest rents in the metro. Recently, vacancy has become an issue for landlords as renters are moving from Austin’s core, both for cheaper housing options and more space. As long as migration to Austin remained strong, South Central Austin should see a quick rebound post-COVID-19 and see strong demand for apartments given its proximity to Downtown Austin and many of Austin’s coolest bars, restaurants, and activities. New properties are commanding a significant premium over older buildings. Landlords are receiving on average $2.25/SF for units built since 2011, compared with $1.70/SF for those built before 2021, a 30 percent premium for the new product.
The Austin American-Statesman redevelopment could also fundamentally alter South Austin. As it stands now, South Central Austin is a location for living and playing but lacks an effective option for working, preventing it from fully becoming a live/work/play node. There are offices scattered along Barton Springs and some on Lamar, but most are older and/or smaller. The current plans call for around 3-4 million square feet of mixed-use space, of which office is a significant component, according to CoStar.
What does this mean for Investors?
The multifamily sector has been one of the favored asset classes in 2020, as the pandemic disrupts other industries. Given the stable rent roll and permanence of current tenants, multifamily is predicted to come out stronger once COVID-19 concerns subside. However, the industry has not escaped without a scrape. The COVID-19 pandemic has slowed transaction activity, as buyers and sellers report a wide bid-ask spread. Further, a lack of pricing information due to non-disclosure laws in Texas complicates matters. While some assets have sold, it’s hard to pin-point any “pandemic discount.” Liquidity in South Central Austin is sporadic, as it is across most submarkets in Austin. Investor interest is consistent, so liquidity is more of a function of how frequently properties come to market. In the past 12 months, three sales have taken place in South Central Austin.
