Our team recently attended the Austin Market Update hosted by Twelve Rivers Realty. The overall message is that Austin is continuing to grow despite concerns of a looming national recession. Justin Garrett of Balfour Beatty as well as Tim Landy, Paul Smith and Kevin Bown of Twelve Rivers were among the panel members. They offered great insights into current trends fueling what could be considered recession-proof growth in Austin and strategies utilized to optimize investment potential. Here are key takeaways on development trends and practices.
- Follow the moving trucks.
- Importance of Placemaking in community and portfolio development.
- Analyzing how city planning impacts investment potential.
Business is booming.
Business and job growth are continuing to be on the rise with what seems like a never-ending parade of relocation and start-up announcements headquartering in Austin. There are currently 10 high rises under construction in large part due to this mass corporation influx. This demand for business and residential space is also pushing design boundaries to maximize a building’s tenant potential. As evidence of this, part of this current round of construction will include what will be the tallest building in Texas standing at 1,000ft+ which will be able to claim the highest elevation pool that will be located on the 70th floor. In addition to an Austin weird cool factor and business friendly incentives, natural resources are on the top of many corporations’ radars – specifically water.
As there is a mass exodus from states like California and Arizona, when looking at Texas’ water supply – there is an advantage – naturally occurring events such as hurricanes that can replenish reservoirs. Texas also has an established portfolio of water reclamation, reuse, and supply development solutions to combat drought and meet needs of manufacturers such as Samsung that would require large water reserves for chip manufacturing. The ability to attract business from multiple industries, not only tech, allows Austin to become a little more recession-proof when projecting continued growth.
Placemaking taking center stage.
The majority of new buildings going up in the city are mixed use, with this current round being no exception. Buildings are composed of office space, hotel, retail, and residences (mostly luxury apartments). Placemaking is focused on curating spaces that are inviting and can be utilized by a plethora of businesses and/or residence types. Mixed-use allows the building to not be restricted to a singular business purpose/tenant type giving the portfolio owner more freedom to cater to varying market behavior. In addition, this creates an 18-hour day of traffic that can serve as a catalyst for community development through “self-policing” in areas like Sixth Street. Currently Sixth street is dominated by night life (maybe 8-hour traffic span) allowing the area to be filled with lingering riff raff that would be deterred if there was a larger continuous flow of people and activity throughout the day.
A key component in 18-hour approach is getting employees back into office. Placemaking is another resource in the corporate toolbox to increase return to office participation. It’s no longer just slap some cubicles up and bland interiors that could induce seasonal depression regardless of direct sunlight shining into your office. These employees then contribute to continuous flow by having access to nearby stores, restaurants, and nightlife. Staying in the area vs creating empty corporate centers come 5pm. Think the Domain for example, happy hour is only a few steps away… We’ll continue to see similarly planned developments in the future.
Be aware of your surroundings.
When looking at potential real estate investments, always be aware of your surroundings. It is not only about what is the makeup of the neighborhood and surrounding buildings – it’s looking 10 miles down the road for what’s coming down the pipeline. There are 3 things to consider: eminent domain, non-vertically developed structures, and prospective corporate development.
Eminent Domain: Are there rail lines or highway accesses that could potentially put your property under eminent domain? Paying attention to transportation development is key especially as Austin continues to try and solve for an ever-growing traffic and commuter congestion. Someone say subway line?
Non-vertically developed structures: Looking at a condo downtown? Is there a parking lot outside your window – likelihood that will be knocked down and a new high rise will be there soon…. pretty high. Austin is facing an affordable housing shortage. One of the main ways to create affordable housing is vertical development. Knowing when to sell before a potential new development is announced as well as simply being aware that view can be compromised is something to be considered when looking at potential real estate investments.
Prospective corporate development: Utilize other businesses to qualify an area for growth potential. For example, there are two children’s hospitals coming to the area. These are not decisions taken lightly and are backed by 10, 20-year studies. Large development investments bring with it off-shoot benefits such as the housing and secondary trades that will be needed to cater to the staff and visitors of the hospital.
All in all, Austin is going nowhere but up – literally. When looking at this metropolitan area in comparison to others across the country – you can use these development strategies to analyze growth potential. Remember to ask yourself these questions.
- Are the moving trucks coming or going in this area?
- The development that is occurring, what type of structures are they and how do the contribute to continued economic growth?
- What is the availability of natural resources that can impact an area’s ability to meet a variety of business operational needs in addition to residential?
- What other businesses are coming to the area that will stimulate growth across multiple planes?
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