The economy of Texas hasn’t had a smooth ride in recent years, as stubbornly low prices for oil has led to job cuts and sharp reductions in office space, causing equal amounts of suffering for locals and investors alike.
Not in Austin, though. Instead of having ghost towers and sky high unemployment, its offices are being rented out at a steady clip, and the jobless rate is so low that wages are on the rise.
This is possible due to its balanced economy, as government and university payrolls have provided stability as the local tech sector has blown up. Thanks to these factors, the effects of energy layoffs have been muted in Austin.
This city’s boom has treated investors well, as Al Hartman can attest. Calling Houston home, he has had to grapple with losses in his backyard. However, the ongoing good times in Austin has allowed him to re-allocate his capital, keeping his assets in great shape.
Curious about the state of commercial real estate in Austin? Wondering where things are headed in the future? We’ll answer both questions below.
The vacancy rate is lower today than it was one year ago
Times have been abysmally bad in places like Houston and Dallas. For example, the vacancy rate in Houston is expected to peak at 21.5% before the end of 2017.
On the opposite side of the coin, Austin posted a commercial vacancy rate of 11.7% at the end of Q2, down markedly from the same quarter in 2016. Trend lines are pointing towards a sub 10% figure as soon as 2018.
How is Austin making bigger world-class cities look silly? With plenty of brilliant grads from the University of Texas flooding the local market with talent, tech firms have swept in to scoop them up.
Since the cost of living is prohibitively high in Silicon Valley, firms like Facebook and Apple have instead opened campuses here, allowing young workers to continue to live in a city that has long been favored by millennials.
As a result of this influx of tech firms and the growth of homegrown startups, quality office space is a hot commodity in Austin, leading to a vacancy rate that is in decline. In time, this will lead to higher rents and sale prices.
Business and income growth is booming
There’s no other way to describe it – Austin is booming. The trend of tech firms migrating to Austin has unleashed a wave of spending that has led to more job growth in other sectors.
As of the end of the second quarter, Austin’s unemployment rate stands at 3.2%. At this level, employees can name their salary within reason, leading to an expansion in local disposable income.
As this has happened, retail and other tertiary economic sectors have boomed, leading to an increased demand for commercial space.
Would be entrepreneurs have also been able to save up a runway to launch businesses in this economic environment – in time, this should lead to even more demand for offices, as the successful ones will need space for their growing enterprises.
The near-term future for commercial growth in Austin is a bright one
Austin’s economy is not one where the ongoing malaise gripping the rest of Texas is set to move in eventually. Because of its fundamentals and economic trends, the future looks bright for Austin.
The cost of living has made Austin a highly attractive place for money conscious Millennials. With plenty of tech employment and with it being possible to live a great life for drastically less than in Silicon Valley, it should not be surprising why this city is so hot right now.
Additionally, taxes here are considerably lower than in many other states in the nation. This allows startups to retain more capital for expansion and research, while individuals can keep more of their paycheck.