"Quarterly trends show continued downward pressure on rental rates and occupancy," says Robin Davis of Austin Investor Interests. "However, annual numbers are beginning to reflect a slight increase."
For 2003, Davis tells GlobeSt.com, rental rates and occupancies are expected to stay flat. "There's an extensive amount of new supply coming online during a time of low demand," she says.
The basic problem is the same one that's wreaked havoc on the area's office and industrial real estate markets: very slow job growth in the Austin area. Economic reports have said job growth should pick up in the second half of the year and accelerate in 2004.
Rents averaged $699 in the fourth quarter, which was down $14 from the third quarter and $44 from the end of 2001. More than 83% of the total Austin market offered concessions, which were equivalent to one or two months' free rent.
During the year, the gap in rents between classes of apartments narrowed. Class A rent fell from an average of 95 cents per sf to 89 cents; class B rent dropped from 93 cents to 83 cents; and class C rents slid to 82 cents from 89 cents.
Developers kept building apartments through 2002, peaking with 2,778 units in the fourth quarter for an annual total of 7,022 units. That's a decrease from 2001, when 9,469 units were built. Also in 2002, 3,244 non-conventional units--student and affordable housing--were added to the market.
Those non-conventional units accounted for 22% of development in 2002. This year, they will provide particular competition for conventional units in the far north, northeast, southeast and Cedar Park/Leander submarkets.
Davis says the non-conventional units are becoming more like conventional apartments. "It used to be they just had walls," she says. "Now, they have washer/dryers, playgrounds, pools, hot tubs, racquet ball courts. There are fewer distinguishing factors between the two.
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