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CoStar Market Insights: Where the Multifamily Action is in Austin

Top Three Submarkets Seeing Most New Apartment Construction
July 31, 2017
Sam Tenenbaum is a Market Economist for CoStar Market Analytics covering the Austin market.
Sam Tenenbaum is a Market Economist for CoStar Market Analytics covering the Austin market.

Top Submarket for Apt. Construction Found Just South of CBD

Much of the new apartment development that has occurred in Austin early in the current cycle has been centered along South Lamar. This node is increasingly becoming an entertainment district, with plenty of new restaurants and coffee shops and the rebuilt Alamo Drafthouse. Whole Foods headquarters (which includes a flagship store) is just across Lady Bird Lake, and offers easy access to both the CBD and SR-71/290, and in turn, both 360 and MoPac. This area has attracted many millennial residents.

Lately however, as land prices continue to escalate, more multifamily development has shifted further south. Only two projects are currently underway on Lamar (after seeing nearly 1,700 units added between 2012 and 2014.) At present, there are nearly as many units underway south of Ben White Blvd. with much of the development activity taking place along I-35. Many of these new properties are offering one-bedroom rents between $900-$1,100 per month.

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East Austin Emerges as Hotspot for Gentrification

Driven by the availability of affordable homes combined with a short commute to downtown Austin, the University of Texas or anywhere north along I-35 or 183, East Austin continues to see a surge in multifamily construction.

Historically, this was a working class neighborhood, but the presence of some of Austin’s hottest bars and restaurants (including five of the 13 "most important" restaurants rated by Thrillist) has drawn the attention of some national developers.

What's more, East Austin offers one of the few locations in the region for transit-oriented development. The submarket has two Capital Metro light rail stations, both of which are attracting significant development in the near term.

The MLK station, located fairly close to the burgeoning Mueller neighborhood, has spurred significant development, including approximately 800 apartment units within half a mile around the station, as well as the redevelopment of single-family homes and conversion of retail space into the bars, restaurants and trendy shopping that continue to attract Austinites.

The other station, Plaza Saltillo, has had plans on the books for a mixed-use project since 1997. The project is finally getting off the ground, thanks to a partnership between Endeavor, Columbus Realty Partners and Capital Metro, which provided a 99-year lease for the site. Reportedly, the project will include about 800 residential units, although the breakout between for-sale and for-rent has yet to be disclosed. It will also include more than 100,000 square feet of retail and nearly 150,000 square feet of office space, as well as serving as one of CapMetro's major transit hubs.

Downtown/University Seeing Switch to Condos

Another interesting story in Austin's multifamily market has been the changes underway in the Downtown/University submarket. While not seeing much apartment construction today, this submarket led the way earlier in the cycle. In fact, back in 2014, nearly 30% of this submarket's total apartment inventory was under construction and much of it was amenity-loaded, high-priced product. As a result, vacancies ticked up and rent growth slowed dramatically as fears of potential overbuilding for those types of apartments constrained growth.

In recent months, apartment construction has taken a back seat to condo building. Four large residential condo projects are underway with prices around $600 to $800 per square foot, well above the prices paid by investors for apartment properties.

This may change again in the near future as a few developers have recently announced plans to build more apartments downtown after Northshore, the last major new apartment project to deliver, has filled up. While new apartment supply seems to have ebbed for now, it will likely come back over the next few years.

CoStar Market Insights is a new feature providing a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 206 metro areas, with a granular understanding of the projects, players and economic trends that move these markets. Learn how CoStar Market Analytics can add to your market knowledge, helping to minimize risk and maximize returns.

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