Builders Regroup While Rentals Thrive
RESOURCE: Community Impact
by Joe Olivieri

Local real estate professionals don’t expect 2012 to be a boom year for Southwest Austin, but they do foresee slow and steady growth with encouraging signs on the horizon.

They predict that a still-high demand for apartments will push up rents, which will in turn bring more renters into the housing market. A low inventory of new houses plus the building restrictions in Southwest Austin will cause local homes to retain their value.

Meanwhile, area homebuilders are feeling more confident and some are beginning long-term developments near the city limits, where there is more space than closer to downtown and fewer environmental issues.

“As long as people are working and there’s household formation, and it’s in an area that’s growing, everybody has to live somewhere,” said Scott Eckley, Pulte Homes vice president of sales in Austin.

“Demand is either going to go to the rental business or a home purchase. Right now, in a lot of ways, buying makes more sense.”

Renting versus buying

Robert Grunnah, broker and owner of Castle Hill Investments, said the housing market is slow right now because it is difficult for buyers to get financing to take advantage of historically low 30-year fixed mortgage rates.

“The rates are so low that in many cases, it is less expensive to own than rent,” he said. “So why would anybody rent? Because they can’t qualify. In 2006, anyone and their mother could get a loan. Now, very few can. That results in a stagnant market.”

Last fall was a busy time for leases, said Barbara Quarles, broker associate with Pioneer Real Estate Services, located in South Austin.

“People are still moving into Austin,” the Village of San Leanna alderwoman said. “Building may have slowed down in the last year or two, but people are looking to rent.”
Jennifer Lamm, property manager of Ranch House Apartments on Slaughter Lane, said rentals are going quickly.

“Occupancies are way up, beyond where they were before,” she said. “They’ve been steady for about a year and much better than what they were two years ago. It’s exciting.”

She said local schools, the economy and the proximity to the greenbelt draw people to the area.
Grunnah said the owners and developers of multifamily dwellings will see the best return in 2012. He warned that high demand and limited supply will eventually push up prices.

“Say you can rent a house for about $1,300 [per month],” he said. “Once rents become noticeably higher than a mortgage and you can get more for the same purchase price, you’ll start to see more people move into the purchase market.”

Mat Peterson, Armadillo Homes on-site sales consultant, said condominiums were also doing well in Southwest Austin.

Encouraging factors

Eckley said three fundamentals looked good for homebuilders: high apartment occupancy, low unemployment and good household formation growth.

He said roughly 94 percent to 96 percent of all apartments in Austin are occupied right now.

“When kids grow up and leave the house, they either need to rent or buy. When that number is growing, that’s good,” he said.

He said the company is feeling bullish about the Central Texas market—business is up 10 percent over last year. Pulte Homes held a grand opening for its newest venture, the Hollow at Slaughter Creek, in late January.

“I think people recognize that the worst of the downturn is behind us,” he said. “We’re not in sunny days yet. We’re starting to see some price increases. Inventories are at an all-time low. When people are more confident about the economy, they are thinking about buying a home.”

Builders for Ashton Woods Homes are clearing land and doing site work for a subdivision called Ridgeview, said Renee McQuillian, marketing and Internet sales consultant.

She said Ashton Woods plans to build 165 single family homes on 93 acres in three phases. She added that the company hopes to open the subdivision in early May and move in its first residents by December 2012 or January 2013.

Elsewhere, developers around Southwest Austin are building homes on remaining lots in existing neighborhoods.

Peterson agreed that homebuilders are feeling confident.

“Not many homebuilders have inventory on the ground,” he said. “Most of the neighborhoods are wrapping up, meaning that a year or two from now, there might not be as many new homes to sell. That creates more demand.”

Slow growth

Brian Talley, Regent Property Group LLC owner and real estate broker, said Southwest Austin’s real estate market bottomed out in 2010 and 2011. He is optimistic about what he called positive momentum moving into 2012.

“I believe that we should see slow improvement over the following years,” he said.
Talley, a Lantana Homeowners Association board member, said the subdivision’s recent market history was telling of the impact on the area.

“Lantana got hit hard,” he said. “We still had lots available and all of this new construction. When the recession hit, there was a lot of downsizing. Rentals were going fast, and resales were pretty slow.”
He said Lantana was eventually able to sell all of its homes and close out on the neighborhood.

He said that developable land is in limited supply.

“You either have to go out [farther away from the city] or fight for the right to build there,” he said.
He called environmental concerns such as aquifer protection the biggest restrictions to building in Southwest Austin.

Grunnah said the Edwards Aquifer watershed makes it very difficult to build new projects.

“That’s a good thing if you already own here, because all things being equal, if it costs more to build and it is more prohibitive to do so, values are retained.”

Commercial development

Commercial and office space in south Austin continues to lease quickly, said Nathan Smith, owner of Austin Tenant Advisors.

“It’s interesting. Across the U.S., the perception is that everybody’s doing badly. People think it’s a slow market. A lot of these new projects are leasing up pretty fast,” he said.

Smith said Austin survived the downturn by not getting too greedy and overbuilding.

“There’s a lot of activity. I’m on the phone with landlords—I strictly represent tenants—and everyone is busy,” Smith said. “The phones are ringing off the hook looking for space and sometimes there are multiple offers on some spaces. There’s competition for leasing space.”

Smith said that office space leasing costs are up.

“There are still some deals to be had, but it has dried up a little bit,” he said. “Landlords are not as aggressive [in offering incentives].”

Retail development

Smith said some smaller businesses are feeling confident and are relocating to better sites.

“From a retail perspective, the rates have stayed relatively the same. They didn’t dip a lot, even during the downturn,” he said. “There isn’t a ton of inventory, so it’s a supply-and-demand thing.”

One high-profile development in Southwest Austin is Parkside Village, being built by Stratus Properties Inc. A representative from Stratus was unable to be reached for comment.

The property will hold five buildings anchored by dine-in theater chain Alamo Drafthouse’s Slaughter Lane location. Austin Diagnostic Clinic and The Coffee Bean & Tea Leaf have opened, and zpizza will open in February.

Grunnah was excited for what the Drafthouse’s presence in Southwest Austin means for the area.

“That means that Central Austin is expanding down to Slaughter Lane,” he said. “You can have more affordable accommodations and all of the amenities.”

He said the market for commercial and retail properties is doing well.

“Tech businesses are doing extremely well. Tech stocks are doing well. As companies do well, they need office space,” he said. “On the commercial side, that’s going to help retail, too, because there’s going to be a more affluent community.”

Grunnah said Southwest Austin is one of the best strategically positioned neighborhoods economically in the country because of how well Austin is doing.

“When I get a listing, it sells. It doesn’t sit,” he said. “I am very gung-ho on continued growth.”

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