In 2016, positive rent growth prevailed, despite a decelerated pace compared to 2015. For the first time since 2014, national rent growth dipped below 4% to stand at 3.8% annually. Regionally, Austin’s annual rent growth for 2016 was 3.6%.
Despite chatter of softening in the Austin market, natural governors seem to be keeping the market healthy. Between July 1 and Dec. 31 of 2016, Austin started only 3,000 market-rate multifamily units. About 10,000 units delivered in 2016. By comparison, DFW and Houston both have more than 30,000 units under construction.
The slowdown in starts is, in part, because banking regulations started to get strict about this time last year, JLL managing director Scott LaMontagne (here with Urbanspace's Kevin Burns at a Bisnow event last summer) said. Plus, being this late in the cycle means many developers already have construction debt and are not necessarily looking to take on more.
Decreased deliveries could put upward pressure on rent, which could also make value-add product more appealing to capital. LaMontagne said the value-add space in Texas is still frothy, and has not seen much compression or decompression on cap rates in the last six months.
LaMontagne thinks Austin absorption will be at equilibrium this year. He expects the market to firm in 2018 after reduced deliveries. He also expects lessening of banking regulations with the new presidential administration.
“I think this pause is a needed breather, and it will help to bring us into a better operational state,” LaMontagne said.
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