Austin to Remain a Safe Haven for Multifamily Investors

Despite economic headwinds — provoked by high inflation and interest rate hikes across the country — robust population and job growth driven by large businesses relocating from coastal markets might help Austin avoid a slowdown. The metro has been the fastest-growing city in Texas over the past decade, with its population increasing by 33% from 2010 to 2020, according to the Austin Chamber.

With favorable employment trends and so many people attracted to the metro, the need for rental housing continues to be high in Austin. The metro recorded the lowest vacancy rate since 2014 in the second quarter, falling to 4.6 percent, Newmark reported. On a year-over-year basis, the vacancy rate fell by 230 basis points, representing the most significant year-over-year improvement in more than a decade.

Multifamily Investment Activity Climbed High in Q2

Investment trends mirrored the healthy market conditions in the metro, with transaction activity increasing by 40% from the first quarter to the second quarter, according to Newmark research. At the same time, the number of properties sold during the first half of 2022 exceeded the number of properties traded during the same period in 2021 by 8%.

Property prices also pushed higher in 2022, with the average price per unit increasing by 25% from 2021, reaching $260,400 per unit. Thanks to increasing rent rates and continued interest from investors cap rates averaged around 3.7% during the first half of the year, climbing around 20 basis points from the levels recorded at the end of 2021.

While a report from Yardi Matrix stated that “Austin has moved beyond the recovery phase and entered expansion mode,” it predicted that as debt is becoming more expensive some deals will likely not materialize in the near future. While some deals will inevitably fall through and prices will adjust, given the higher interest rates, strong market fundamentals will likely keep Austin a safe haven for investors.