Estates Gazette, a leading commercial real estate magazine in the United Kingdom, has just released its Spring Global Investor Guide, and it features a big package on Austin. The story includes on-the-ground perspectives from Spencer Hayes, Managing Principal of Cushman & Wakefield’s Austin office:
When I think of Austin, what quickly comes to mind is the availability of risk-oriented private capital to invest in businesses, and the intellectual capital to grow them. The metropolitan area is home to more than 2m people who are young – the median age is 33.5 years – and smart, as Austin has the third-most educated workforce in the US. People want to be here, so companies want to be here. That, in turn, attracts more people. This self-perpetuating cycle of growth has Austin on track to double in size by 2040.
California tech giants like Google, Apple, and Facebook have migrated to Austin. Oracle just acquired a 300-unit apartment complex for employees and is building a new 560,000-square-foot cloud-computing campus nearby. Home-grown Dell Computer, which employs 16,000, has created dozens of so-called “Dellionaires” who continue to invest in Austin.
The city’s vibrant tech and start-up communities are balanced by the depth and stability of its education and government sectors – Austin is the state capital of Texas and the University of Texas is based here. The market’s diversity has protected it from the kind of downturns Houston is now experiencing owing to troubles in the oil and gas industry. Austin’s office market saw more than 2 million square feet in net absorption last year, even with 914,000 square feet in new development. The vacancy rate currently stands at 8.2 percent; average class A rents are $36.95 per square foot and continue to rise.
Job and population growth have driven strong retail and multifamily activity, too. Entertainment and tourism also play a significant role in the local economy, with Formula 1 racing (the only U.S. stop), the South by Southwest (SXSW) media and music conference, and Austin City Limits venue, show, and festival. The appeal of Austin has not gone unnoticed; US News & World Report recently ranked the city top of its “Best Places to Live” list for 2017.
All of this positivity is not to say that Austin is without its challenges. It is behind the curve on transportation infrastructure, and escalating housing costs are chipping away at the affordability advantage the city has long enjoyed.
With a total inventory of just 50 million square feet, Austin’s relatively small office market is typically overlooked by the largest institutional investors, which focus on major cities like London, Tokyo, New York, and Los Angeles. Getting a decent-sized deal here is tougher for them, so when assets do become available, the competition is fierce and, thus, yields are compressed.
People will continue to invest in Austin, though, because its drivers are almost impossible to find elsewhere and its prospects for the future are solid. When it comes to long-term, core buys, Austin has a very good story to tell.
To read the full Global Investor Guide report on Austin, click here. http://globalrealestateinsight.com/north-america/austins-power/