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Austin Is The ‘Hottest Market In The Country,’ Bucking The Trend

Austin Is The 'Hottest Market In The Country,' Bucking The Trend

The Texas city is a hotbed for commercial real estate investment and a draw for businesses wishing to relocate to a high-tech center.

AUSTIN, Texas (KTRK) — After the pandemic prompted business closures, lockdown orders, and the cancellation of South by Southwest, the annual event that pulls in millions of dollars for the city, the outlook in Austin was dismal in March 2020.

After a year, optimism has taken the place of despair. The coronavirus remains a threat across the country, and empty office buildings and restaurants have stifled growth, but Austin, Texas’ capital, has emerged as a hotspot for commercial real estate investment and a magnet for out-of-state corporate relocations, bolstering its allure as a high-tech hub.

Mike McDonald, vice chairman of Cushman & Wakefield, who represents pension funds, insurance companies, and real estate investment trusts, said, “It’s the hottest market in the country right now.” “Millennials are flocking to the Sun Belt, and businesses are following suit. The companies are being watched by investors.”

According to the CBRE Group, a national real estate services and investment organization, the city has become the No. 1 destination in the United States for potential commercial real estate investment. According to a CBRE investor study issued this week, it has surpassed Greater Los Angeles as the most favoured market for 2021 due to its labor market’s durability and a sustainable growth projection.

According to the Austin Chamber of Commerce, the pandemic’s economic impact resulted in a net loss of 33,400 jobs in the Austin metropolitan area in 2020, although the surge of new businesses helped Austin weather the storm better than most other cities. According to the chamber, firms either expanding in Austin or migrating to the city created a record 22,114 new employment in 2020, compared to 13,562 in 2019.

The city’s success is part of a larger economic trend that has swept over the Sun Belt. The Dallas-Fort Worth metro region, which came in second in CBRE’s investment study, has also been among the cities that have remained stable during the pandemic.

According to CBRE’s survey, “the Sun Belt cities of Austin, Dallas, Phoenix, and Atlanta were among the top-performing metros where the least number of jobs were lost in 2020.”

Austin, which is home to offices of major titans such as Apple, Dell, Facebook, IBM, and Samsung, is fast becoming one of the country’s most important tech hubs after Silicon Valley, advertising itself as “Silicon Hills” due to its location in the Texas Hill Country.

Others have been attracted by the cachet. Elon Musk, Tesla’s CEO, announced in December that he had relocated to Texas from California, making the news while workers built a $1.1 billion, 5,000-employee Tesla factory in the East Austin neighborhood. Oracle, one of the largest database firms in the world, announced in December that it would relocate its headquarters from Silicon Valley to Austin.

“It’s become the second home for a huge cluster of the major tech businesses,” said Charlie W. Malet, president and chief investment officer of Shorenstein Properties, a San Francisco-based company that invests in 22 areas around the country, including Austin. “It’s no secret that the job market in Northern California, particularly in Silicon Valley, is extremely tight. There’s a lot of competition for good people. “We can’t have everything in one location; we need to spread our wings,” many growing tech enterprises have determined.

According to a survey released in January by JLL, a commercial real estate services company, nationwide office vacancy rates grew to 17.1 percent by the end of 2020, the third consecutive quarterly increase. The market in Austin, on the other hand, was solid, with “less than 1% net occupancy losses in 2020,” according to the research.

Austin’s new developments include towers in the downtown area as well as retail and residential complexes throughout the city. Despite the fact that the pandemic has not slowed growth, it has inspired architectural adjustments such as touch-free elevators, more open space, movable windows, and better ventilation.

Experts credit Austin’s surprising economic success to a number of factors, including its status as a technology and education hub, a business-friendly environment, a plethora of social attractions, and the charming eccentricity that inspired the motto “Keep Austin Weird.”

“All of the qualities that made Austin appealing before the epidemic are still here despite the virus,” said Mayor Steve Adler, who also mentioned that South by Southwest returned this month as an online festival and that organizers were working on a physical comeback in 2022.

According to William C. Jenkins, a principal of Stonelake Funds Partners, a developer in Austin that is constructing a 50-story office and residential tower downtown, the surge of job seekers has resulted in an increase of out-of-state investment capital. Institutional investors are seeking for “new cutting-edge, best-of-market real estate in Austin and in Texas” with an eye to “write huge investment checks” for major projects, he added, as migrating corporations generate new jobs in the Lone Star State.

Developers from other states are taking notice. Tishman Speyer, a New York-based real estate developer, made its Austin debut in February by purchasing the Foundry, a two-building office complex in East Austin. The firm’s president and chief executive, Rob Speyer, said in a statement that adding the city to its real estate portfolio was a “natural choice.”

Other large developers have long considered Austin to be an important part of their expansion plans.

After more than 20 years in Austin, Cousins Properties of Atlanta is one of the most prominent office property owners, with 4.8 million square feet of office space finished or under construction. Cousins is a key developer of the Domain, a high-end complex in North Austin comprising retail, residential, and office space.

According to Colin Connolly, president and chief executive of Cousins, much of the city’s attraction originates from its position as a “very socially progressive and eclectic, creative city” that benefits from being in a state with lesser regulation and taxation.

Brandywine Realty Trust, the largest landlord in its hometown of Philadelphia, has been in the Austin market for 15 years and is currently developing a 66-acre site near the Domain over a five-year period. The $3 billion Broadmoor campus, which is centered by an IBM structure, is expected to be finished in around ten years. It will combine business, residential, and retail space within at least 11 acres of parkland, according to planners, giving the neighborhood an uptown feel.

The 405 Colorado, a 25-story office tower that will begin housing tenants this summer, is also approaching completion.

“People believe Austin is on a roll and will continue to be on a roll in the long run,” said William D. Redd, Brandywine’s executive vice president and senior managing director. “You want a piece of that action if you’re a huge investment firm.”