The Central Austin submarket consists primarily of older Class B and C apartments. With the submarket’s primary housing composed of students from the University of Texas, much of the development is often purpose-built student housing. The submarket benefits mostly from its centralized location and its proximity to The University of Texas, the central business district (CBD), and the Domain. Homes in Central Austin are the most expensive in the metro, and coupled with high incomes, there is a steady demand for new Class A units, which are filling in quickly. With about 700 market-rate units underway, 20 percent of the market, and the limited student population, Central Austin could face weakening demand fundamentals. As a reasonably small submarket and with the pandemic disrupting learning, vacancies in the submarket have increased as students go home to continue online education. As student housing continues to struggle, as does market-rate apartments in the face of COVID-19. According to CoStar, rent losses of roughly three percent year-over-year, point to the continued concern of overbuilding in Austin’s Central core.
What does this mean for Investors?
The multifamily sector has been one of the favored asset classes in 2020, as the pandemic disrupts other industries. Given the stable rent roll and permanence of current tenants, multifamily is predicted to come out stronger once COVID-19 concerns subside. However, the industry has not escaped without a scrape. The COVID-19 pandemic has slowed transaction activity, as buyers and sellers report a wide bid-ask spread. Further, a lack of pricing information due to non-disclosure laws in Texas complicates matters. While some assets have sold, it’s hard to pin-point any
“pandemic discount.” In Central Austin, pricing trends are sporadic as the submarket boasts older and smaller Class B and C assets. In the past 12 months, three sales have taken place in Central Austin, including a 28-unit property built in 1977 for $4.16 million.