Vacancy Goes Up in Austin, But So Does Employment
- Jun 03, 2014
Austin, Texas—The Silicon Hills nickname Austin, Texas, received in the 1990s proves to still be a suitable one for the current times due to the technology firms that are continuously attracted to this area. This impacts a few market aspects, primarily employment, and subsequently construction, rent growth and new investments.
After a less impressive 2013, Austin rebounded to occupy the third position in Forbes’ latest listing of the best cities for jobs. The area recorded growth of 4.1 percent in 2013; it reached a 13.7 percent growth rate between 2008 and 2013, ranked at no. 1 in 2012 and dipping down to no. 10 in 2013.
According to a Marcus & Millichap report, the construction inventory will expand by 6 percent in 2014, almost double from last year—a total of 11,500 apartments are to be delivered by the end of the year; the effect will be one of pressuring the market wide vacancy during lease-ups. However, although vacancy goes up 100 basis points, going further in 2014 Austin appears to be better positioned to absorb the new units as here the payrolls grow at the fastest pace in the nation – 40,200 jobs will be added by employers throughout the year, which represents a 4.6 percent increase from 2013’s 32,000 positions.
The majority of the jobs forming in the metro area are high-paying technology positions, most attractive to young employees looking for a live-work environment. Oracle alone announced that it would hire 200 people with support of $1 million from the Texas Enterprise Fund. White-collar jobs will be critical in absorbing the heavy wave of development as rents rise with 4.6 percent to $1,065 per month, after last year operators lifted rents with 5.7 percent.
The North and Northeast Austin areas are best for investors who attempt to purchase in the path of gentrification. Multiple bids per listing will remain present, increasing the cap rates. Moreover, CMBS loans dating from 2004 and 2007 will rollover this year, adding to the number of lower-tier deals available. As one of the country’s most promising economies, Austin’s new listings will be of great interest to out-of-state and local capital, both looking to secure apartments in this flourishing area.