A new lease on downtown

Any given day, Austinites driving through Central Austin's core have to maneuver through the numerous, towering condo projects currently under construction. Downtown, East Austin and the University of Texas campus area are brimming with present and future residential construction sites, with apartments increasingly gaining a large portion of the market.

Despite an 8 percent increase in apartment vacancy rates for Austin in 2007, and more increases projected for 2008, the growing market isn't expected to slow down.

Jennifer Weibrand, a development associate with Gables Residential, says there are enough full properties in the area to prove the demand for more apartments exists. She says Austin's strong economy and job market are huge pulls for the area, ensuring the city remains a hot market where people want to live.

A 2007 report released by Marcus & Millichap, a national brokerage firm specializing in real estate investments, shows that area builders are expected to complete 4,800 apartment units by the end of the year. This is in addition to the 2,350 units added last year, and the more than 4,500 units planned for completion in 2008.

Steve Hollingsworth, an associate in Marcus & Millichap's Austin office, says the city's climbing vacancy rates are attributable to the large number of stock that's available right now. He predicts the numbers will even out as rising interest rates and tighter credit force many out of the homebuying market and into the rental market.

"Lower-tier buyers can't afford homes or condos and their property taxes, which leads to an increase in renters," Hollingsworth says. "Rents will also increase as normal entry-level homeowners aren't able to get financing and the employment and population growth push rents up even more."

The average price for a one-bedroom apartment in Austin is $707 per month, with rents expected to reach $822 per month for new properties this year. Still, experts believe apartments downtown and in Central Austin have a competitive edge over condos in the area, citing the high demand from students and young professionals in their 20s and 30s who aren't looking for a long-term commitment or who wish to test out the area before buying.

"Renting in downtown and in the central areas is a really good way to try it out and to save on half of your monthly housing expenses," Weibrand says. "All else being equal, monthly expenses for condos are almost double with mortgages, property taxes and association fees."

ZOM Inc., which is building The Monarch, a 305-unit residential tower at Fifth Street and West Avenue, recently announced that it's turning its apartment-turned-condo high-rise back into apartments, proving the demand for downtown rental units is strong.

Gables currently has over 2,100 apartments in the Austin market and will be delivering almost 600 more units from now until 2010 through projects like Gables Pressler, 5th Street Commons and Gables Park Plaza. But Gables and ZOM aren't the only developers taking advantage of the building boom.

source: bizjournals.com