Apartment demand expected to remain strong in '08

Austin Business Journal

A booming Austin economy will keep apartment demand high in 2008, but not high enough to match pace with eager developers who plan to significantly add to the local stock in the coming year.

A new multifamily report from Marcus & Millichap Real Estate Investment Services ranks Austin the 22nd strongest apartment market in the country in 2008, down from 16th in 2007 thanks to increased levels of new construction and above-average vacancy.

Developers are forecasted to bring 5,100 new apartment units online in the year ahead--up from 4,800 in 2007--representing a 3.6 percent increase in the overall stock. With many older units in and around Central Austin being torn down to make room for new construction or converted to condos, developers are responding by adding product in areas like Northwest and South Austin.

That increase in inventory is likely to lead market-wide vacancy to inch up to 7.6 percent in 2008. At the same time, asking rents are anticipated to rise 3.7 percent to $851 a month and effective rents will advance 3.4 percent to $767 a month.

On the investment sales front, Marcus & Millichap predicts investor outlook will remain positive for Austin in the year ahead buoyed by a strong economic outlook and cap rates hovering in the mid-7 percent range. While out-of-state investors focus their attention on newer assets in areas like Far Northwest Austin, local investors will likely look for opportunities on value-add and repositioning opportunities adjacent to the Central submarket.

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