Can Austin’s real estate market continue to stay hot?

Michele GonzalezBlog, Land DevelopmentLeave a Comment

Austin Real Estate Market

Austin has enjoyed a nearly decade-long run of tremendous economic growth, which has made it a hot real estate market, too. Those positives, however, come with some trade-offs. Today’s median single-family home price hovers around $320,000; that’s up from $196,000 in 2008, a greater than 60 percent climb, which puts pressure on affordability.

At the same time, the cost of doing business in Austin has also risen and for companies considering relocation to the area and commercial development, in general, Austin can seem less appealing. Today, Austin’s real estate market still enjoys the “hot” label, but some concerns loom as to whether the boom is sustainable. Even if a slowdown does occur, however, Austin has several key advantages that will help it in the long haul.

Job growth, education

The city is known as a place for great entertainment, music, the arts and other abundant lifestyle elements. All of this makes Austin a very desirable place to live. Whether it’s someone in their early or mid-career years or a retiree who is considering relocation, Austin attracts people for its overall quality of life, entrepreneurial spirit and friendly business climate. In the past five years, the number of businesses in Austin has grown 21 percent and there was also a 24 percent increase in the number of people those firms hired. Additionally, the city ranks high for small business life expectancy, a key indicator that Austin’s business climate nurtures new ventures into viable, long-term enterprises. Austin is also considered one of the safest cities among those with a population greater than 300,000. All these elements have helped to spur considerable job growth.

In the 2017-18 fiscal year, Austin added nearly 36,000 jobs, a 3.4 percent jump over the previous year. Wholesale trade (6,800 jobs) and financial and business services (11,600 jobs) were the top two growth sectors. Because of Austin’s entrepreneurial culture, the city is seeing more and more startups and tech-related businesses, which attract tech talent and higher-paying jobs. In fact, Austin was ranked sixth in a CBRE study that weighed a metro area’s vitality, depth and attractiveness to tech employers and tech talent. It has also been rated among the top 10 highly-educated populations in the U.S. Austin embraces diversity as well. It is one of 15 large cities in the country with the highest share of African American residents with STEM bachelor’s degrees, according to the Brookings Institute. In short, Austin is adding quality, high-level jobs that encourage a robust economy built around strong intellectual capital, which is great for long-term economic growth—and real estate.

Austin is also still popular for retirees. One WalletHub report, ranking the four factors of affordability, quality of life, healthcare and activities, put Austin in the top 10 out of 180 places to retire. While retirees may not be moving here for jobs, their presence increases the need for higher skilled workers in certain industries like healthcare and financial services.

Weighing commercial real estate concerns

Concerns about Austin’s commercial real estate market have surfaced recently. A forecast by professional services firm PwC and the Urban Land Institute that weighs the attractiveness for commercial real estate investment in certain markets saw Austin’s ranking dip from the number two spot to number six. At the same time, Dallas-Ft. Worth climbed from No. 5 to No. 1.

Publishers point to a higher cost of living and a higher cost to do business in Austin, relative to Dallas-Ft. Worth as the drivers behind the rankings change. But while the report had its negatives, that doesn’t mean real estate investors are writing off the Lone Star State’s capitol, says report co-publisher, R. Byron Carlock, Jr.

“[But] with its young, educated workforce and population growth rate projected to be over three times the national average, Austin remains of great interest to investors,” he added.

Austin is no different from other cities when it comes to concerns about macro-level economic factors like rising interest rates, tariff hikes and other potential influences that could weigh on future investment in business and real estate. These matters could dampen some economic activity in Austin, just as they would in other cities that have enjoyed strong economic growth for the past five-plus years. But Austin’s growing educated, highly-skilled workforce and overall attractiveness as a destination make it unique. Even with a real estate slowdown, Austin has a good chance to still enjoy an overall favorable business and real estate investment environment for years to come.

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