AUSTIN | Misc. Discussions - No Politics

[Green Country]

Originally Posted by paul78701

Austin has a housing shortage. I don't think anyone is worried about a "glut" of apartments anywhere in the city, let alone downtown.

Per Newmark, Metro-wide, Austin multi-family properties are at 87% occupancy at year-end, and continues to add thousands more every quarter than are being absorbed.

Per Cushman & Wakefield, at 3rd Q 2023, the metro multifamily occupancy was 90.33% and falling. CBD multifamily occupancy stood at 88.43% and falling. 243 units were absorbed in 9 months. During that same time, 298 units were delivered to the market (only 81.5% absorbed). More worryingly, there are currently 6,213 units in the CBD, with 3,331 units currently under construction; a 54% increase in supply! With the current unoccupied apartments plus the ones under construction, at the rate of absorption experienced in the first 9 months of 2023, there is 12 1/2-year supply of apartments.

Austin will be lucky to get through this without one or more stalled and/or down-sized projects.

Since the initial inquiry was about both multi-family and office, here are the office market stats for the CBD, per Transwestern, year-end 2023:

Total occupancy: 71.4%.
Net absorption CY 2023: Negative 25,631 square feet.
Current Inventory: 17,267,751 square feet
Under Construction: 2,127,105 square feet (12.3% increase in supply).

[austlar1]

Originally Posted by Green Country

Per Newmark, Metro-wide, Austin multi-family properties are at 87% occupancy at year-end, and continues to add thousands more every quarter than are being absorbed.

Per Cushman & Wakefield, at 3rd Q 2023, the metro multifamily occupancy was 90.33% and falling. CBD multifamily occupancy stood at 88.43% and falling. 243 units were absorbed in 9 months. During that same time, 298 units were delivered to the market (only 81.5% absorbed). More worryingly, there are currently 6,213 units in the CBD, with 3,331 units currently under construction; a 54% increase in supply! With the current unoccupied apartments plus the ones under construction, at the rate of absorption experienced in the first 9 months of 2023, there is 12 1/2-year supply of apartments.

Austin will be lucky to get through this without one or more stalled and/or down-sized projects.

Since the initial inquiry was about both multi-family and office, here are the office market stats for the CBD, per Transwestern, year-end 2023:

Total occupancy: 71.4%.
Net absorption CY 2023: Negative 25,631 square feet.
Current Inventory: 17,267,751 square feet
Under Construction: 2,127,105 square feet (12.3% increase in supply).

Careful. They sometimes shoot the messenger around here, especially if they don't like the news

[Green Country]

Originally Posted by austlar1

Careful. They sometimes shoot the messenger around here, especially if they don't like the news

Yeah, even asking if anyone was noticing the elephant in the room was not greeted very warmly.

[Werdman89]

869 building permits pulled in December. Not bad! Looking forward to additional land use changes this year that will go into place, helping lower developer costs to keep the supply coming.

[siriusdog]

There is a valid point that the housing market is cooling but is that really a bad thing? The prices are still far higher than they were 24 mt ago and we really need a shift in pricing to enable affordability. Yes, a few investors that bought last year (myself included) are not making a killing like previously or loosing money on these investments but overall market is still pretty healthy. We are just coming off such a hot market for so long that any cooling seems strange.
Building high rises is a multi-faceted process and it's not a good gauge of market health. Yes, we've not had any ground breakings in CBD last year and we might not have one in 2024 (TBD). I'm fine with that. We have quite a large pipeline to work through. And there have been multiple MF housing breaking ground around town that show there is strong demand for the product. I suspect this will continue.
The city in five year will look very different to the city right now even if nothing else breaks ground.

Office market will likely go through a painful contraction. This will likely prevent any large scale development in the next few years and recovery here will likely depend on relocations. I don't see us having enough home grown businesses to absorb a high ratio of what's on the market. The silver lining is that if the housing/office costs go down, we will remain a desirable destination.

Green country, I read your msg as alarmist and I don't think that's realistic view today. Especially in the housing market.

[GoldenBoot]

Originally Posted by siriusdog

There is a valid point that the housing market is cooling but is that really a bad thing? The prices are still far higher than they were 24 mt ago and we really need a shift in pricing to enable affordability. Yes, a few investors that bought last year (myself included) are not making a killing like previously or loosing money on these investments but overall market is still pretty healthy. We are just coming off such a hot market for so long that any cooling seems strange.
Building high rises is a multi-faceted process and it's not a good gauge of market health. Yes, we've not had any ground breakings in CBD last year and we might not have one in 2024 (TBD). I'm fine with that. We have quite a large pipeline to work through. And there have been multiple MF housing breaking ground around town that show there is strong demand for the product. I suspect this will continue.
The city in five year will look very different to the city right now even if nothing else breaks ground.

Office market will likely go through a painful contraction. This will likely prevent any large scale development in the next few years and recovery here will likely depend on relocations. I don't see us having enough home grown businesses to absorb a high ratio of what's on the market. The silver lining is that if the housing/office costs go down, we will remain a desirable destination.

Green country, I read your msg as alarmist and I don't think that's realistic view today. Especially in the housing market.

Great post, Siriusdog. I agree with you.

[Green Country]

Originally Posted by siriusdog

There is a valid point that the housing market is cooling but is that really a bad thing? The prices are still far higher than they were 24 mt ago and we really need a shift in pricing to enable affordability. Yes, a few investors that bought last year (myself included) are not making a killing like previously or loosing money on these investments but overall market is still pretty healthy. We are just coming off such a hot market for so long that any cooling seems strange.
Building high rises is a multi-faceted process and it's not a good gauge of market health. Yes, we've not had any ground breakings in CBD last year and we might not have one in 2024 (TBD). I'm fine with that. We have quite a large pipeline to work through. And there have been multiple MF housing breaking ground around town that show there is strong demand for the product. I suspect this will continue.
The city in five year will look very different to the city right now even if nothing else breaks ground.

Office market will likely go through a painful contraction. This will likely prevent any large scale development in the next few years and recovery here will likely depend on relocations. I don't see us having enough home grown businesses to absorb a high ratio of what's on the market. The silver lining is that if the housing/office costs go down, we will remain a desirable destination.

Green country, I read your msg as alarmist and I don't think that's realistic view today. Especially in the housing market.

You seem to be focused on the single-family housing market; a totally different animal than the muiti-family, and a market I did not mention.

Perhaps there's enough demand for the buildings in the suburbs for which ground was recently broken, but their having broken ground does not by any stretch mean that there is strong demand for them. We shall see; in any event, the suburban market does not appear nearly as overbuilt as the CBD market is (or is about to be).

I merely reported the facts of the CBD market; if that sounds alarmist, well, there we are.

[Werdman89]

Originally Posted by Green Country

You seem to be focused on the single-family housing market; a totally different animal than the muiti-family, and a market I did not mention.

Perhaps there's enough demand for the buildings in the suburbs for which ground was recently broken, but their having broken ground does not by any stretch mean that there is strong demand for them. We shall see; in any event, the suburban market does not appear nearly as overbuilt as the CBD market is (or is about to be).

I merely reported the facts of the CBD market; if that sounds alarmist, well, there we are.

It shouldn't surprise that Cushman and Wakefield's framing of the data differs from those who care about affordability and have seen a meteoric rise in rents over the past 10 years.

[wwmiv]

Originally Posted by Green Country

You seem to be focused on the single-family housing market; a totally different animal than the muiti-family, and a market I did not mention.

Perhaps there's enough demand for the buildings in the suburbs for which ground was recently broken, but their having broken ground does not by any stretch mean that there is strong demand for them. We shall see; in any event, the suburban market does not appear nearly as overbuilt as the CBD market is (or is about to be).

I merely reported the facts of the CBD market; if that sounds alarmist, well, there we are.

Eh, overbuilt is a bit of a stretch. Even absent future in-migrants, the population fundamentals are strong enough that Austin is one of the few metropolitan areas still experiencing natural growth. With recent changes in code allowing for significant single-family infill development within city-limits, and the cooling of apartment occupancy you mention (although I don’t think those numbers, in the context of being a high growth metropolitan area with a high proportion of kids, are all that much of **alarm bell** moment), I don’t think it should shock anyone that the market will likely shift to producing more SFHs and condos within city limits than the apartment-dominant structures being delivered for the last decade. There are still wide swaths of tear downs occupied by elderly homeowners in inner-east Austin just begging to be replaced with three SFHs and zero parking. Perversely, building more owner-occupied housing will necessarily contribute to a further cooling of the rental market (more people buying means fewer people renting).

Also, as you said, other submarkets are much healthier.

[paul78701]

Originally Posted by wwmiv

Eh, overbuilt is a bit of a stretch. Even absent future in-migrants, the population fundamentals are strong enough that Austin is one of the few metropolitan areas still experiencing natural growth. With recent changes in code allowing for significant single-family infill development within city-limits, and the cooling of apartment occupancy you mention (although I don’t think those numbers, in the context of being a high growth metropolitan area with a high proportion of kids, are all that much of **alarm bell** moment), I don’t think it should shock anyone that the market will likely shift to producing more SFHs and condos within city limits than the apartment-dominant structures being delivered for the last decade. There are still wide swaths of tear downs occupied by elderly homeowners in inner-east Austin just begging to be replaced with three SFHs and zero parking. Perversely, building more owner-occupied housing will necessarily contribute to a further cooling of the rental market (more people buying means fewer people renting).

Also, as you said, other submarkets are much healthier.

The word "overbuilt" gets thrown around way too much. It's hyperbolic BS. It only makes sense to use that word if it's not possible to fill the units. It is definitely possible to fill these units.

When one says "overbuilt", it says to me that rents may need to be lowered to meet the supply/demand equilibrium of the market. That's a good thing for renters of course. I don't understand why is that framed as a problem with hyperbolic words like "overbuilt". What they are currently charging is likely more than they need to in order to profit.

Lowering rental rates means less profit may be made for a time, sure, but I doubt the investors in these projects are going to lose their shirts. At some point, when the supply/demand equilibrium adjusts again, they'll be able to raise rents again.

[Green Country]

Originally Posted by paul78701

The word "overbuilt" gets thrown around way too much. It's hyperbolic BS. It only makes sense to use that word if it's not possible to fill the units. It is definitely possible to fill these units.

When one says "overbuilt", it says to me that rents may need to be lowered to meet the supply/demand equilibrium of the market. That's a good thing for renters of course. I don't understand why is that framed as a problem with hyperbolic words like "overbuilt". What they are currently charging is likely more than they need to in order to profit.

Lowering rental rates means less profit may be made for a time, sure, but I doubt the investors in these projects are going to lose their shirts. At some point, when the supply/demand equilibrium adjusts again, they'll be able to raise rents again.

ROFL at the idea that using the word "overbuilt" is hyperbolic BS. Of course the apartments will be filled, but over what time period? As I mentioned above, at the recent absorption rate and with just the apartments already existing and those currently under construction, the CBD has a 12 1/2 year supply of apartments. Of course, over time the market will correct by lowering prices to a market-clearing rate. That's how the market clears out overbuilt supply.

By the way, running the same analysis on the metro market, at the recent absorption rate, and with the currently-vacant and currently-under-construction units, metro Austin has about a 9 year, 9 month supply of apartments.

[Lobotomizer]

Fantastic news! Of course new apartment construction will probably come to a screeching halt for a while, but the prices need to come down so I see this as a good thing.

[wwmiv]

Originally Posted by Green Country

ROFL at the idea that using the word "overbuilt" is hyperbolic BS. Of course the apartments will be filled, but over what time period? As I mentioned above, at the recent absorption rate and with just the apartments already existing and those currently under construction, the CBD has a 12 1/2 year supply of apartments. Of course, over time the market will correct by lowering prices to a market-clearing rate. That's how the market clears out overbuilt supply.

By the way, running the same analysis on the metro market, at the recent absorption rate, and with the currently-vacant and currently-under-construction units, metro Austin has about a 9 year, 9 month supply of apartments.

I don’t buy these numbers at all. Where’d you get your degree?

[Novacek]

Originally Posted by Green Country

CBD multifamily occupancy stood at 88.43% and falling. 243 units were absorbed in 9 months. During that same time, 298 units were delivered to the market (only 81.5% absorbed). More worryingly, there are currently 6,213 units in the CBD, with 3,331 units currently under construction; a 54% increase in supply! With the current unoccupied apartments plus the ones under construction, at the rate of absorption experienced in the first 9 months of 2023, there is 12 1/2-year supply of apartments.

Austin will be lucky to get through this without one or more stalled and/or down-sized projects.

This appears to be the source of those numbers

https://cw-gbl-gws-prod.azureedge.ne...ly_q3-2023.pdf

I think your mistake is seeing an absorption rate that tracks pretty closely to delivery, and then assuming that rate will stay flat as supply expands.


Here's where your model falls down.

UT :
Delivered 0 new units. Absorbed -21 new units. 199 under construction.

Using your logic, it will take Infinity years for those under construction to be filled (and in fact no new units will ever be absorbed).


"CBD multifamily occupancy stood at 88.43% and falling."

The vacancy rate decreased, which means the occupancy rate _increased_

[Green Country]

Originally Posted by wwmiv

I don’t buy these numbers at all. Where’d you get your degree?

Ah, yes, don't like the message, so attack the messenger.

It's simple math. Obviously recognizing that current trends won't likely continue exactly the same yadda yadda yadda. But the math is what it is.

Current Metro apartment inventory: 246,346. Vacancy Rate: 9.66% = 23,797 vacant apartments (the only hyperbolic BS in this thread is the claim made by someone above that Austin has a housing shortage). An additional 50,577 are currently under construction. Total supply (current vacant + under construction) = 74,347. 5,272 units were absorbed in the first 9 months of 2023 (636.33 per month. 74,347 units / 636.33 absorbed each month = 117 months (9 years, 9 months).

[IluvATX]

Originally Posted by Green Country

Ah, yes, don't like the message, so attack the messenger.

It's simple math. Obviously recognizing that current trends won't likely continue exactly the same yadda yadda yadda. But the math is what it is.

Current Metro apartment inventory: 246,346. Vacancy Rate: 9.66% = 23,797 vacant apartments (the only hyperbolic BS in this thread is the claim made by someone above that Austin has a housing shortage). An additional 50,577 are currently under construction. Total supply (current vacant + under construction) = 74,347. 5,272 units were absorbed in the first 9 months of 2023 (636.33 per month. 74,347 units / 636.33 absorbed each month = 117 months (9 years, 9 months).

What is your obsession with Austin vacancy rates? You obviously don’t live in Austin and your other posts are quite trollish. I just don’t understand your intention here.

[Novacek]

Originally Posted by Green Country

9.66% = 23,797 vacant apartments (the only hyperbolic BS in this thread is the claim made by someone above that Austin has a housing shortage).

that vacancy rate is still below 10%, so by the rule of thumb it's not yet (quite) enough to put a significant and lasting downward pressure on rents that were seeing upward pressures for a long time.

[Green Country]

Originally Posted by Novacek

This appears to be the source of those numbers

https://cw-gbl-gws-prod.azureedge.ne...ly_q3-2023.pdf

I think your mistake is seeing an absorption rate that tracks pretty closely to delivery, and then assuming that rate will stay flat as supply expands.


Here's where your model falls down.

UT :
Delivered 0 new units. Absorbed -21 new units. 199 under construction.

Using your logic, it will take Infinity years for those under construction to be filled (and in fact no new units will ever be absorbed).


"CBD multifamily occupancy stood at 88.43% and falling."

The vacancy rate decreased, which means the occupancy rate _increased_

As I stated, the numbers are assuming current trends continue.

I didn't see an absorption rate that tracks close to the delivery rate. That does not exist. In the first 9 months of 2023, the CBD delivered 298 and absorbed only 243. Even worse, Metro-wide, 11,105 were delivered and only 5,727 were absorbed. There is nothing to make one think absorption will expand as more units are delivered.

The vacancy rate decrease you saw in the Cushman Wakefield report was year over year (3rd Q 2022 vs 3rd Q 2023). I did the math to see what happened in the first 9 months of 2023. 298 units were delivered; only 243 units were absorbed (81.54% occupied). 81.54% occupancy is lower than the current occupancy of 88.43%, so, yes, the deliveries and absorption that occurred in the first nine months of 2023 resulted in a lower occupancy rate.

[Novacek]

Originally Posted by Green Country

As I stated, the numbers are assuming current trends continue.

Which never happens, because there's a different feedback cycle involved. New units lead to vacancies, which lead to rent decreases/concessions, which lead to decreases in vacancies.

That's before even getting into the cycle of housing costs on household formation rates.

Originally Posted by Green Country

I didn't see an absorption rate that tracks close to the delivery rate. That does not exist. In the first 9 months of 2023, the CBD delivered 298 and absorbed only 243. Even worse, Metro-wide, 11,105 were delivered and only 5,727 were absorbed. There is nothing to make one think absorption will expand as more units are delivered.

The vacancy rate decrease you saw in the Cushman Wakefield report was year over year (3rd Q 2022 vs 3rd Q 2023). I did the math to see what happened in the first 9 months of 2023. 298 units were delivered; only 243 units were absorbed (81.54% occupied). 81.54% occupancy is lower than the current occupancy of 88.43%, so, yes, the deliveries and absorption that occurred in the first nine months of 2023 resulted in a lower occupancy rate.

And the reason why you (almost) always compare things YoY is because housing has some very strong seasonal variations.

CBD occupancy is (slightly) up YoY, despite new units being delivered (a fairly healthy 5%+). No time to panic.

[wwmiv]

Construction doesn’t magically stop when vacancies hit a certain magic level, GreenCountry. Unless lenders become cash strapped, they’re gonna keep lending because everywhere period has a healthy vacancy rate. Novacek is right: 10% is the shorthand standard for the level at which there’s significant downward pressure on costs. The active goal right now for Austin political leadership is to stay around that line for around a decade. By doing so, you’ll decrease the average cost for the average renter AND carry the market forward in a strong enough fashion to also protect the average lender and the average property developer and manager from an outright loss. This necessitates the continued construction of housing to maintain. Your Ivory Tower perspective, whether you realize it or not, ONLY addresses and cares about the financial needs of the everyone NOT NAMED the renter if you’re deliberately advocating for fewer apartments to be built … thereby exerting upward pressure on prices to the point where people are spending 40% of the paycheck on rent, which has the absolutely regressive effect of redistributing income upward. It’s wrong and evil.

Good example: San Antonio metro has one of the highest vacancy rates nationally AND YET they also are the highest average share of income spent on housing. In other words, housing is both too plentiful AND too expensive. How would YOU explain that dynamic? I’ll wait for your reply to give me two cents.