You only have to live, work, play or have heard about Austin, Texas to know that it’s been growing at a phenomenal rate and that our economy is doing well.
In the years following “The Great Recession Take 2,” Austin’s job and wage growth has been among the best in the nation, peaking at the number two and three slots from 2008 to 2014. That’s the great news.
However, in 2013-2014, Austin job growth slid back to position number 12 and wage growth to 25th. The economic slowing is evident in the last few years, but still remains quite strong in comparison to a large majority of the US.
The Milken Institute report on Best-Performing Cities for 2015, an annual report ranking US cities according to their economic strength, cites recent shocks to Austin’s economy as the cause, including the plunge in oil prices that reduced shale-related exploration throughout Texas; “the high value of the dollar constraining exports of electronic components, computers, and related equipment”; and loss of domestic market share to imports dampening local production.
Nevertheless the Milken Report still places the Austin-Round Rock, Texas metropolitan area as “among the Top 5 best performing large metros” in 4th place in 2015 and attributes its continued success to the diversification of its economy over recent decades—mostly in the leisure and hospitality sector, with health services and medical research following.
Microchip manufacturing and energy have been responsible in large part for Austin’s amazing recovery years, but its recent economic strength, according to the report cites “diversification away from energy and chip dependence, with expansion in leisure and hospitality, biotechnology, and social networking” as a primary asset, along with the University of Texas’ ability to provide knowledge workers; Austin’s lower costs; and ease of recruitment.
Let’s take a look at Austin’s economy from a few different perspectives. Music and Festivals and Hospitality, Oh My! Note that the report singles out the expansion of Austin’s leisure and hospitality industry, something the “live music capital of the world” can be proud of. Since 2010, Austin’s hospitality industry employment has risen a whopping 33 percent.
Findings in the Milken report are reiterated in a study by Austin Business Journals’ “American City Business Journals.” The study said that jobs in the hospitality, tourism and restaurant industries were among the most numerous in the Austin area. In recent years, Austin has expanded several of its larger festival events, drawing more and more people from all over the country and the world.
The South by Southwest Festival has been the largest player, drawing over sixty thousand nights of hotel bookings and injecting over $300 million into Austin’s economy. Austin City Limits Festival, the Formula 1 Grand Prix and the Fun Fun Fun Fest have also had significant economic impact.
Thanks to the booming hospitality sector and Austin’s tech sector (which we’ll get to in a moment), Austin ranks fourth in US cities for job growth and retention. In fact, we’ve got the second fastest rate of job growth across the nation in the last five years.
People interviewing for jobs here are attracted to a number of different things: the industrial base, a diverse employee base, a lifestyle which appeals to millennials, and the lower cost of doing business here. ULI’s Emerging Trends for Real Estate 2015 says the market is an example of “jobs chasing people.”
Good for Austin.
No matter how much we enjoy live music here, Austin is still a tech town. (And it might be argued that without the tech industry, there would be no live music acclaim for Austin.) Like other leading technology cities, Austin has had fast growth in its professional, scientific and technical services sector. Up 39% since 2010, Austin tech is the fastest growing sector of any industry in Austin.
Apple has grown to nearly 4,000 employees at its Austin offices—their largest facility apart from Silicon Valley. Smaller tech companies are expanding as well, such as Roku and others. And all that tech business has also had an impact on increasing business travel and hotel demand.
Thanks to the University of Texas at Austin, the city has a lot of available talent. Almost a quarter of the half million UT Austin alumni still live in the
Austin metro area. Austin also draws a serious number of technically skilled people from outside the area and boasts the highest amount of people migrating from other places relative to its population nationwide.
Housing and Real Estate
More money brings more people. And Austin’s economic bustle continues to attract people in droves.
Here are some facts to chew on…
• Emerging Trends for Real Estate says that Austin’s market was a top choice for both the office sector and the single-family housing sector in 2015 and ranked number two for retail.
• Last year over 30,000 more domestic migrants moved into the Austin area than left.
• And Austin’s population rose 3%—more than quadrupling the national average. “Population growth was a whopping 3 percent in 2014, more than four times the national average gain,” reads the Milken report.
• “Housing demand has returned to pre-housing crisis levels despite prices rising at an 8 percent year-over-year pace in recent months.”
• Commercial construction is also moving at a quick pace and new office space is being taken up as it’s created.
Patrick L. Phillips, ULI Global Chief Executive Officer, identifies the best choices for overall real estate prospects as where there is a continued rise of markets. Houston is ranked first and Austin, second—go Texas!—beating out San Francisco for 2015.
He says that investors are “looking closely at opportunities beyond the core markets” in coastal areas. “These cities are positioning themselves as highly competitive in terms of livability, employment offerings, and recreational and cultural amenities,” adds Phillips.
Leave it to a tech leader to brandish the way in the new sharing economy.
Digital media has made it easy to do just about anything online from selling your stuff to renting your house out while you’re on vacation to turning your car into a part-time taxi service. As a young, tech-friendly enclave that prides itself on it uniqueness, it’s no surprise that Austin has moving willingly and gracefully into the sharing economy.
But there may be a few clouds on the horizon. Only time will tell whether they will gather momentum and overshadow Austin’s bright and sunny economic forecast or if they will simply dissipate in all that sunshine.
Here are a few things to look out for…
• Growing number of regulations. The Austin City Council has recently proposed extensive regulations for short-term rental housing and recently approved a moratorium on new licenses for short-term rentals. Council members have also expressed an interest in imposing more regulations on ride-sharing companies like Lyft and Uber, as well.
• Falling oil prices. If oil prices continue to fall it could affect tax receipts and force cuts to state budgets that would be felt by job cuts at state government offices, many of which are based in Austin.
• Lack of parking. One of Austin’s most obvious problems is a lack of parking for downtown businesses. Austin is one of 43 cities in the US fighting minimum parking requirements. (Minimum parking requirements means that developers are only required to add parking spaces for people with disabilities.) Lack of parking is creating problems for businesses and employees. And if you are headed downtown and actually find a parking place, pull out your wallet. KVUE reports the average garage space to cost $6 for the first hour and $21 for three or more hours.
But every city has its fair share of problems, right? And Austin is no different. If you go to a beautiful beach you still have to think about sunburn and jellyfish occasionally. But the warm weather and sunshine will still attract people from miles away.
That’s what we’re dealing with in Austin. And with all this fair economic weather, Austin seems poised to remain among the nation’s best performers in the years ahead.
Milken Institute: http://www.milkeninstitute.org/
ULI’s Emerging Trends for Real Estate: http://uli.org/research/centers-initiatives/center-for-capital-markets/emerging-trends-in-real-estate/