Bucking the Pandemic, Austin Is ‘the Hottest Market within the Nation’

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Bucking the Pandemic, Austin Is ‘the Hottest Market in the Country’

AUSTIN, Texas – In March 2020, the outlook in Austin was dire following the pandemic forced shutdown, lockdown orders and the cancellation of South by Southwest, the annual festival that brings the city to millions of dollars.

A year later, optimism replaced despair. Coronavirus remains a threat across the country, and empty office buildings and restaurants have hampered growth, but Austin, the capital of Texas, has emerged as a hot spot for commercial real estate investment and a magnet for business relocations outside of the state, strengthening its appeal as the center of the city High-tech industry.

"It's the hottest market in the country right now," said Mike McDonald, vice chairman of Cushman & Wakefield, which represents pension funds, insurance companies and real estate mutual funds. “Millennials are moving to the sun belt and companies are following millennials. Investors follow the company. "

The city is the number 1 destination in the US for potential commercial real estate investment, according to the CBRE Group, a national real estate services and investment firm. According to an investor survey released by CBRE this week, it has ousted Greater Los Angeles as the most preferred market for 2021 due to job resilience and prospects for steady growth.

A record 21,864 jobs were attributed to companies either expanding in Austin or moving to the city in 2020, according to a report released by the Austin Chamber of Commerce in January.

The city's prosperity is part of a broad economic wave that has spread across parts of the Sun Belt. The Dallas-Fort Worth area, ranked # 2 in the CBRE investment survey, is also high on the list of urban centers that have seen stability during the pandemic.

"The Sun Belt markets in Austin, Dallas, Phoenix and Atlanta were among the top performing metropolitan areas with the lowest number of job losses in 2020," CBRE said in its survey.

Home to offices of tech giants like Apple, Dell, Facebook, IBM and Samsung, Austin is increasingly seen as one of the dominant tech hubs in the country after Silicon Valley. It advertises as "Silicon Hills," an indication of its location in Texas Hill Land.

This seal of approval has helped attract others. Elon Musk, Tesla's chief executive officer, said in December that he had moved to Texas from California. That was announced when construction workers were building a Tesla factory with 5,000 employees in the East Austin area, valued at $ 1.1 billion. Oracle, one of the world's largest database companies, announced in December that it was moving its headquarters from Silicon Valley to Austin.

"It's a second home for a large group of larger technology companies," said Charlie W. Malet, president and chief investment officer of Shorenstein Properties, San Francisco, which invests in 22 markets across the country, including Austin. "It's no secret that a market like Northern California, the Silicon Valley job market, is incredibly tight. There is massive competition for talent. And many of the growing tech companies have decided that" we can't have everything in one place; we need to spread our wings. "

The nationwide vacancy rate rose to 17.1 percent by the end of 2020. This is the third quarterly increase in a row. This is according to a report released in January by JLL, a commercial real estate services company. The Austin market, however, was strong: "With less than 1 percent net rental loss in 2020," the report said.

New projects in Austin include adding skyscrapers downtown and creating retail and residential complexes in other parts of the city. While the pandemic has not hampered development, it has affected design changes such as touchless elevators, expanded open spaces, operable windows, and improved ventilation.

Updated

March 23, 2021, 1:20 p.m. ET

Experts attribute Austin's counterintuitive economic performance to a number of factors: its position as an education and technology center, a business-friendly climate, an abundance of social attractions, and the charming eccentricity that spawned the Keep Austin Weird slogan.

"All of the things that make Austin a pre-pandemic attraction are still here despite the pandemic," said Mayor Steve Adler, noting that South by Southwest returned as an online event this month and organizers on its physical Returns were working towards in 2022.

The flood of job seekers coming to Texas has resulted in an inflow of non-government investment capital, said William C. Jenkins, principal of Stonelake Capital Partners, an Austin developer planning a 50-story office and apartment tower downtown. As migrant companies create new jobs in the Lone Star State, institutional investors are looking for "new, cutting-edge Austin and Texas properties" to "write big investment checks" on major projects.

Out-of-state developers are starting to notice. Tishman Speyer, a New York-based real estate developer, made its Austin market debut in February by purchasing the Foundry, a two-building office property in East Austin. Adding the city to its real estate portfolio was a "logical decision," said Rob Speyer, the company's president and chief executive, in a statement.

Other great developers have long made Austin an integral part of their growth strategy.

Cousins ​​Properties of Atlanta is one of the leading office property owners in Austin for more than 20 years. 4.8 million square meters of office space is either completed or under construction. Cousins ​​is a major developer of Domain, a high-end retail, residential and office complex in the North Austin neighborhood.

Much of the city's appeal stems from its stance as a "very socially progressive and diverse, creative city," which benefits from a state with lower regulation and lower taxes, said Colin Connolly, president and chief executive officer of Cousins.

The largest landlord in its hometown of Philadelphia, Brandywine Realty Trust has been in the Austin market for 15 years. This year, multi-year development begins on a 66 acre site near the domain. The Broadmoor campus, which will be anchored by an IBM complex, is expected to be completed in about 10 years and will cost about $ 3 billion. Planners say it will fill the area with an uptown vibe, combining office, residential, and retail space in at least 11 acres of parks.

The company is also close to completing the 405 Colorado, a 25-story office tower that will house tenants starting this summer.

"People believe in the long run that Austin is and will continue to be on the move," said William D. Redd, executive vice president and senior managing director of Brandywine. "If you're a large investment firm, you want to be a part of this action."

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