Can someone please explain to me how the Apartment market can be oversupplied? I by not just lower the price to get more tenants
The national apartment market is currently oversaturated.
Jake Dean
Occupancy continues to wobble in an increasingly oversaturated San Antonio apartment market, mirroring trends across the nation.
MRI ApartmentData, which tracks multifamily trends across the Sun Belt, posted a slight increase in San Antonio's apartment occupancy rates between November and December 2023, a modest 0.2% uptick to a rate of 87.7%. Still, that rate pushes the market in favor of tenants over landlords.
"I think it would be reasonable to say that we're oversupplied, as all markets are right now. Every single one that we cover and even ones that we don't are behaving similarly because of the mountain of new construction that's come on," said MRI ApartmentData industry principal Bruce McClenny. Because of that, he said, absorption rates — not occupancy — are the main factor when considering the state of multifamily development.
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That's good news for San Antonio, which has posted absorption rates in the black across almost all apartment classes for the last two years.
Still, that oversupply has resulted in over half of Class A properties offering concessions to get more potential residents across the threshold, which happens when supply begins to overtake demand, McClenny said.
Properties competing with one another has also brought rental rates down consistently since summer 2022 — around the time interest rates began climbing. In San Antonio, rental rate growth saw a 1.4% decline over the past 12 months.
But the situation is a little more dire in neighboring Austin. The Texas capital posted an occupancy rate of 86.5% in December 2023, and rental rates have experienced a crushing 5.3% decline over the past year.
"Austin had 24.5% rent growth in 2021; in 2022 they had 3.9%, so in the last two years they spiked up by more than 28%," McClenny said. "Even still, coming down 5.3% is not what you would want to see if you were owning or managing apartments."
Still, both San Antonio and Austin are posting positive absorption rates — at least when it comes to newly minted Class A properties, which makes it a matter of time before occupancy rates perk back up.
"It's a balancing act, but if absorption is positive, occupancy will take care of itself over time," McClenny said.
But there's another issue, one that is on the horizon: The surfeit of rental units coming online has resulted in a lull in new multifamily permits, which could potentially reverse the trend and foment an overabundance of demand, driving prices back up. It's what McClenny refers to as a "whipsaw effect." The trouble is, if everyone anticipates a lull and tries to catch demand at the right time, it could neuter the effect completely.
"There will be a scramble because all developers are seeing this lull in permitting. But typically what happens is, if they're all thinking the same thing at the same time, it's not a lull. It's a peak," he said.
San Antonio's apartment market isn't doing great. Austin's is slightly worse.
Ramzi Abou GhalioumThe national apartment market is currently oversaturated.
Jake Dean
Occupancy continues to wobble in an increasingly oversaturated San Antonio apartment market, mirroring trends across the nation.
MRI ApartmentData, which tracks multifamily trends across the Sun Belt, posted a slight increase in San Antonio's apartment occupancy rates between November and December 2023, a modest 0.2% uptick to a rate of 87.7%. Still, that rate pushes the market in favor of tenants over landlords.
"I think it would be reasonable to say that we're oversupplied, as all markets are right now. Every single one that we cover and even ones that we don't are behaving similarly because of the mountain of new construction that's come on," said MRI ApartmentData industry principal Bruce McClenny. Because of that, he said, absorption rates — not occupancy — are the main factor when considering the state of multifamily development.
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Over 50% Off Your Annual Membership
ACCESS AWARD-WINNING INSIGHTS & INTELLIGENCE
Subscribe Now
Keep up with the latest San Antonio headlines by signing up here for SABJ newsletters.
That's good news for San Antonio, which has posted absorption rates in the black across almost all apartment classes for the last two years.
Still, that oversupply has resulted in over half of Class A properties offering concessions to get more potential residents across the threshold, which happens when supply begins to overtake demand, McClenny said.
Properties competing with one another has also brought rental rates down consistently since summer 2022 — around the time interest rates began climbing. In San Antonio, rental rate growth saw a 1.4% decline over the past 12 months.
But the situation is a little more dire in neighboring Austin. The Texas capital posted an occupancy rate of 86.5% in December 2023, and rental rates have experienced a crushing 5.3% decline over the past year.
"Austin had 24.5% rent growth in 2021; in 2022 they had 3.9%, so in the last two years they spiked up by more than 28%," McClenny said. "Even still, coming down 5.3% is not what you would want to see if you were owning or managing apartments."
Still, both San Antonio and Austin are posting positive absorption rates — at least when it comes to newly minted Class A properties, which makes it a matter of time before occupancy rates perk back up.
"It's a balancing act, but if absorption is positive, occupancy will take care of itself over time," McClenny said.
But there's another issue, one that is on the horizon: The surfeit of rental units coming online has resulted in a lull in new multifamily permits, which could potentially reverse the trend and foment an overabundance of demand, driving prices back up. It's what McClenny refers to as a "whipsaw effect." The trouble is, if everyone anticipates a lull and tries to catch demand at the right time, it could neuter the effect completely.
"There will be a scramble because all developers are seeing this lull in permitting. But typically what happens is, if they're all thinking the same thing at the same time, it's not a lull. It's a peak," he said.