More information from the CBRE Multi-Housing article in the July issue of REDNews Magazine.

Austin –

2012 sales volume reached near record highs, with 94 transactions and 23,805 units sold. Typical seller motivations included tax reasons, loan maturities and harvesting profits. Given its strong market fundamentals, Austin attracted a wide base of buyers in 2012 including REITs, institutions and private buyers, a trend that is expected to continue throughout the coming year.

For almost three years Austin has seen rental rates increase incrementally, reaching a record high of $1.10 per square foot in the third quarter of 2012. Occupancy rates have  remained relatively steady at 95%. The fourth quarter saw a slight decrease in both rents and occupancy, down 0.05% and 0.85%, respectively. Rents in the Austin market were
up 4.5% annually.

One challenge the market will face in the coming year is the 16,807 units currently under construction. Fortunately, these new units are coming into a solid market. Austin’s job growth ranked second in the nation at 4.4%, which should contribute to the market’s ability to perform reasonably well in 2013. According to many developers, construction costs have increased 20% which will negatively impact the ability to start new projects and keep the development pipeline in check.

Approximately 10,227 units in the pipeline are midrise and/or high-rise properties in the urban core of Austin. That leaves 6,580 units for the rest of the Austin metro area. With average rents of +/- $2.00 per square foot in the urban core, roughly double the average rents in the suburbs, Austin has become two different apartment markets.

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Dallas/Ft. Worth

The Dallas/Fort Worth economy continues to thrive, growing the employment base 2.45% between December 2011 and December 2012, which translates into the addition of 72,600 jobs. The local apartment fundamentals continued to be solid in 2012, though stabilizing throughout the year. Overall occupancy ended the year at 93.7%, which exceeded 93% for the second time since 2008. Rental rates also reached historic highs at an overall average rate of $0.95 per square foot with Dallas leading the charge at $0.98 per square foot. The percentage of units offering concessions reached an all time low in 2012, driving rental rates to the highest point in Dallas/Fort Worth history. Apartment demand slowed in 2012 though the Dallas/Fort Worth market absorbed 9,382 and is projected to absorb an additional 12,033 units in 2013, according to MPF. New supply levels are projected to normalize in the year ahead, with an estimated 12,500 conventional units coming on-line.

Though interest rates remained steady throughout most of the year, cap rates in 2012 ticked up slightly compared to the previous year. Higher-end core or urban infill properties commanded a cap rate premium over garden-style suburban assets.

Transaction volume held steady in 2012, though the buyer profile in Dallas/Fort Worth slightly shifted—institutions became more active, chasing urban infill deals. Private capital was the most active and accounted for 45% of the market transaction volume while REITs and Fund Advisors were less active in 2012. Institutional investors were attracted to the area because of its stable economy, impressive population growth, new job creation and prospects for significant effective rent increases. For these reasons, buyer profiles are  expected to remain stable throughout 2013.

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Houston

Buyer demand in the Houston multi-housing market is robust, driven by improving fundamentals based on phenomenal job growth throughout the region. Unemployment is improving slowly on a national basis, but Houston’s economic engine keeps the market running far ahead. Unemployment in Houston reached a recession high of 8.3% in 2010. By the end of 2012, Houston area unemployment had fallen to 5.8%, below the Texas average of 6.1% and dramatically lower than the U.S. average of 7.8%.

Rents increased in the fourth quarter of 2012 to a record $0.92 per square foot. Having crossed the $0.90 per square foot barrier in the third quarter of 2012 for the first time ever in Houston, rent levels show no signs of slowing their quick pace. Rents increased by nearly 5% overall in 2012. Absorption was positive for the eighth consecutive quarter in the fourth quarter of 2012, and overall 2012 absorption was 16,509 units. Occupancy was highest in the suburban submarket of Galena Park/Jacinto City at 97%, followed by Montrose/Museum District at 95.9%, an inside-the-Loop, high-demand area with more than 2,500 units currently under construction.

Cap rates in early 2013 are holding steady as buyers broaden their focus to suburban submarkets, especially those in or near the Energy Corridor such as West Memorial/Briar Forest, Westchase and Katy/Far West. Buyers will also be interested in the new construction that is just now beginning to enter the market. After reaching 10,000 units in the third quarter of 2012 for the first time since early 2009, the number of units under construction increased to 11,626 in fourth quarter 2012. Construction activity is still well below a level that might be perceived as unsustainable, and in balance with the great demand for apartments.

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San Antonio

San Antonio’s sales transactions in 2012 were well over the numbers seen in 2011, with 51 transactions and $748 million in sales volume. The pace of these sales picked up toward the end of the year as some investors tried to sell their properties ahead of impending tax changes.
The San Antonio apartment market fared well in 2012 with annual occupancy figures up almost 1%, rental rates up 5% and absorption figures reaching their highest levels since 2005. Although the market experienced fourth quarter declines that are historically typical for that time of year, the impact on the market was negligible; occupancy declined .80%
and rents were down .71%.
There are currently 10,408 units under construction that have yet to be added to the area inventory, nearly 65% of which are expected to deliver during 2013. However, with job growth at 2.5%, a level not seen since the 2005-2007 boom period, the new supply is not expected to have a negative impact on the market. Additionally, the new supply coming in
2013 will be fairly spread out among 10 of the city’s 14 submarkets.

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