2021 is off to a rapid start for us and our investors. We just acquired a multi-family property with great potential in Austin in February and are closing on another property in March. We have a strong pipeline of deals and expect to acquire another property in April.
Investor demand for these deals is the highest we have ever seen. We were significantly oversubscribed on both projects.
Given this frenetic activity, savvy investors occasionally ask us if this is a "bubble" and if they might have missed the opportunity.
From our analysis the growth in Austin is just starting and there continues to be significant investment opportunity.
Let's start with rent growth. While 2020 was a flat year for rent growth, Yardi Matrix is projecting Austin to see 3.9% rent growth in 2021, which is the third highest in the country. CBRE just published a report forecasting 9.8% rent growth in Austin in 2022. We do not underwrite our deals assuming such large rent increases.
Why are rents expected to grow so much? For multi family properties rent growth is predicated on population growth. job creation and the supply of new inventory into the market.
Let's start with population growth. Over the last 10 year period and 3 year period Austin has been the fastest growing large city in the nation per the U.S Census Bureau
Then let's look at why people are moving to Austin. Everyone is aware of the big headlines about the $17B Samsung chip plant, the new Tesla factory and Oracle moving it's headquarters to Austin. Looking beyond that, in 2020, we saw 45 companies relocate to Austin and 109 announce expansions. All told, there were 21,864 jobs announced–a record going back to 2004. Keep in mind this is in the middle of a pandemic and an economic slowdown. With vaccinations progressing rapidly and the economy expected to reopen in late summer we will see a lot of these new employees and their families actually move into the city.
Last, let's look at supply. Today on the residential side of things, Austin has 0.6 months of housing inventory. A balanced housing market has about 6 months of supply. Again this is in the middle of a pandemic that has slowed down the national economy. As a lot of new residents to Austin are finding out if you want a new house built it is taking a minimum of 8 months before you can move in. Lack of homes means more people have to rent. And that is where we are seeing an upcoming lack of supply. One of the main impacts from the economic slowdown is a projected lack of supply in 2022 and 2023. Many of the projects that were slated to start construction last year were delayed as banks froze up and builders had to pause their plans. It didn’t stop people from moving here, and we’ll see that impact over the next 12-24 months as the “normal” new construction pipeline looks a lot thinner than it otherwise would have.
Put all this together and you see why we continue to be very bullish about Austin and believe the growth is just getting started.
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