Austin is back. After the tech bust and old-fashioned overbuilding sent apartment occupancy and rents into a tailspin from 2001 to 2003, the market now has recovered fully and ranks once more as the standout performer across the state of Texas.
Following the typical pattern for the Lone Star State's capital city, another building boom is moving into high gear. This round of construction activity looks a little different than previous development spurts, however, with the urban core attracting the most interest and condos joining apartments in the construction mix.
Austin has been producing new jobs again for three full years, and the current job count of 714,000 positions is at an all-time high. Annual growth as of fall 2006 stood at just over 19,000 jobs, an expansion of 2.8 percent. The tech companies that fueled so much of Austin's job production during the late 1990s are back in growth mode, highlighted by a new $3.5 billion computer chip plant that Samsung Electronics is building in northeast Austin. Firms like Dell, Advanced Micro Devices, Applied Materials, AT&T, Motorola, and IBM also are big employers for the area, and these companies are adding new jobs, too. And the metro area can always count on the huge block of jobs sustained by state government agencies and the University of Texas at Austin, where enrollment exceeds 50,000 students. In fall 2006, average apartment occupancy in Austin stood at 96.7 percent, up more than a full percentage point from the year-earlier level and a whopping 8.1 points higher than the trough of 88.6 percent notched in early 2003. Apartment operators have been a little hesitant to push rents because a massive block of new single-family homes now coming on line is making purchase incentives commonplace in the for-sale sector. Still, average rents are up about 3 percent on an annual basis, rising to an average of $768 per month as of September.
Recovery in Austin's apartment market in part reflects a cutback in deliveries. After completions averaged about 7,800 units per year from 2000 to 2003, the new supply total drifted down to a low point just below 1,900 units in 2005. Completions in 2006 will register near 3,400 units, up from the total seen in recent years but still modest compared to the metro's historical norm.
Deliveries won't be limited for much longer, however. Apartment starts surged in recent months, bringing the total block of product under construction to roughly 6,100 units at the end of the third quarter. Furthermore, another 4,400 units were at the starting gate to begin construction right at the end of 2006 or in the first few months of 2007.
The secret is out: Downtown Austin is cool. Thus, it's the urban core that is leading the charge in the metro's current burst of multifamily development. This is a dramatic change from the pattern seen previously, as the last round of construction was focused around the cluster of high-tech employers found at the northern edge of Austin and in adjacent suburban towns like Round Rock and Georgetown. While only about 5,000 people live in downtown Austin today, civic leaders have established a goal to push that total to 25,000 people by 2015, and ongoing housing development is giving the city a great start in moving toward that target. Developments under way and projects that appear poised to start construction right away point to the delivery of more than 7,400 apartments and condominiums in downtown or immediately adjacent neighborhoods during the next couple of years.
Urban Austin's most active construction pocket is the central business district, stretching northward from Town Lake to Martin Luther King Boulevard. In this area, there are 23 multifamily properties totaling almost 3,800 units either under construction or almost under construction. Eighty percent of these projects are high-rise towers, which will completely remake Austin's skyline. One of the biggest is a 44-story, 432-unit condominium project dubbed 360 for its spectacular views. Atlanta's Novare Group started construction on 360 in June, and the $200,000 to $300,000 condos are scheduled for delivery in late 2007.
Another large downtown rental project on the way is Orlando-based ZOM Development's The Monarch, which totals 305 units in a 29-story tower. Located in the West End Market District, The Monarch will feature units ranging in size from 890 square feet to 2,400 square feet. Kevin Wisdom, senior vice president of ZOM Texas, says choosing to build a luxury apartment high-rise in downtown Austin was a no-brainer. "With attributes like proximity to a solid employment base and entertainment and cultural venues, plus the existence of retail services, and certainly the character and spirit inherent to Austin, downtown was not a difficult choice for us when selecting a site for our first Austin development," Wisdom says.
Chicago's AMLI Residential stands at the forefront of development activity in the downtown's fledgling Second Street retail district. AMLI Downtown, which totals 220 units in a seven-story building that was finished in late 2004, was one of the neighborhood's first deliveries. The company now is building AMLI 2nd Street, totaling 231 units in an 18-story tower that should be completed in early 2008. Features will include floor-to-ceiling windows and polished concrete floors, and some units will boast wraparound balconies or sunrooms. With 40,000 square feet of retail shops on the ground floor, AMLI 2nd Street's commercial component will be among the largest at any of the downtown developments. AMLI Residential soon will have company in the Second Street Retail District, as high-rise projects also are on the way from Houston's Hanover Co., San Francisco-based Legacy Partners, and Atlanta's Gables Residential.
The neighborhoods on the periphery of downtown Austin, particularly on the east side of Interstate Highway 35 and the south banks of Town Lake, also are seeing new residential development. The construction pipeline for this area contains 18 projects totaling roughly 2,100 multifamily units, mostly in garden-style or mid-rise buildings. Convenient to downtown's job base and entertainment options, and often offering amazing views, properties completed to date in these closer-in neighborhoods are posting strong demand.
Many of the multifamily developments under construction in the area just east of Interstate Highway 35 are small condo properties like Swede Hill Lofts, Sixth & Bushy, Waterstreet Lofts, and Saltillo Lofts. However, some larger rental developments are in the works as well. Robertson Hill, for example, is a 283-unit apartment project that Houston-based Martin Fein Interests expects to finish around mid-2007. Perched on a hill that provides unobstructed views of the Capitol, the community will offer one- and two-bedroom apartments expected to rent for $1,200 to $2,600 per month. Gen 'Y' Paradise
Another pocket of multifamily construction in Austin's urban core lies north of downtown, around the University of Texas. About 1,500 multifamily units are targeted for completion in this neighborhood during the near term, with roughly two-thirds of this stock coming from local builder Simmons Vedder & Co. The heart of this development activity is The Triangle, a 22-acre mixed-use project that Simmons Vedder is building two miles north of the UT campus. The 450 apartments in this property should finish around the end of 2006, and the development also will include more than 120,000 square feet of retail and restaurant space as well as a park with a three-acre lake.
While The Triangle is being targeted toward young professionals, Simmons Vedder's other projects in the neighborhood are for UT students. The company is putting the finishing touches on The Quarters, which totals 252 apartments and 7,900 square feet of retail space in three separate buildings called Sterling House, Cameron House, and Montgomery House. Another 345 units will come in the planned second phase of The Quarters.