Unprecedented Austin Industrial Real Estate Growth Shows Promise for Investors
When deciding if a city’s real estate is worth your investment, it’s important to look behind the slogans. It’s both easy and tempting to judge cities based on popular opinions or semi-informed hunches. As humans, we have to form impressions, and while those impressions are often accurate, they almost never tell the full story. This is the case with Austin. If you ask most people about the Texas capital, they’ll probably talk about South by Southwest, the young, liberal population, the music scene, and the “Keep Austin Weird” campaigns. And while those are all accurate, real estate investors have to look beyond the surface. The truth is, Austin is so much more than an eclectic crowd of artists, and that impacts its real estate market in very important ways.
Over the last half-decade, Austin has seen unprecedented growth in its industrial sector, which is transforming the area’s real estate market. This is the sort of economic activity that makes up a city, which is why understanding that activity is so vitally important. Local economic changes cause ripple effects throughout the market, so knowing how Austin is changing – and how it isn’t – will help you plan your real estate investment strategy.
It’s a new dawn for the Austin industrial real estate sector, showing more growth for the city as a whole. Image from Wikimedia Commons user Argash.
The Rise of Austin’s Industrial Real Estate
In 2010, during the depths of the economic recession, Austin’s citywide vacancy stood at almost 23% in the industrial sector. Fast-forward five years and that number has been more than halved to a mere 10%. Even that dramatic decrease doesn’t tell the whole story. This growth is expected to continue, so rather than worrying about filling up the available space, developers are looking past that to create new warehousing and other industrial lots. This year alone, a full one million square feet of industrial space is in various stages of development.
This is driven by – and continues to drive – Austin’s very low unemployment rate. The Bureau of Labor Statistics had Austin’s unemployment rate at a mere 3.3% in June, the last month for which data is available. In fact, the Austin-Round Rock metropolitan area had the 12th lowest unemployment rate in the nation, and it is by far the biggest of any metro area that ranks above it. Indeed, you’d have to get pretty far down the list (#35, Minneapolis) to find the next largest area.
The size and prosperity of Austin go hand-in-hand. The industrial real estate boom is in direct response to what has kept Austin afloat – its thriving tech sector. The tech that has driven Austin has led to more calls for expanded warehousing and industrial space to develop products and mass-produce them. R/D space, and especially flexible warehouse design, are some of the more important developments. This leads to more labor moving into the city and a further need for auxiliary industries, like shipping, inventory, and transportation. Austin is in the middle of a boom, and this kind of boom feeds itself.
This kind of boom also leads to higher industrial prices. As recently as 2013, industrial real estate property in Austin was selling at approximately $52 per square foot. Today, it is at $62 and rising. Rental rates are at anywhere from 40 to 60 cents per foot. These are great prices. But what is really great is how these changes feed into other real estate sectors.
How Austin’s Industrial Growth Impacts the Rest of the Real Estate Market
When deciding where to invest, it’s crucial for investors to look at how developments like the warehouses and industrial parks going up in Round Rock and the North Side will impact real estate throughout the area. Austin has been on an upswing. It has always attracted a young population, drawn by jobs and, of course, the University of Texas. Adding in the industrial market will continue to improve upon underlying trends.
This is especially true in two key areas: multi-family residential dwelling units (MDUs) and office/commercial real estate.
MDUs: The tech sector often leads to more people seeking condos and apartments, as young people move in for a few years of work before going elsewhere for a new opportunity. Industrial work also draws people who are moving to follow the jobs. This field requires both skilled and unskilled labor, which draws a broad mix of income levels. This variety results in a wealth of different kinds of housing that can be bought, capitalized, and turned into great investments. The MDU market is going up in Austin. Statewide, prices have increased 4.5% over the last year in this sector. In the Austin metro area, they have gone up 31%. This skyrockets even further to 45% if you just count metro Austin alone. This is extraordinary growth, and given that the industrial sector is really just getting warmed up, it seems like it is the beginning of an excellent trend.
- Commercial and office space: Factories and warehouses aren’t going to be enough for everyone, of course. Corporate headquarters, regional branches, and the continued stream of startups and tech companies moving in mean that the commercial real estate market continues to grow. Office prices in Austin have reached $194.95 per square foot, a year-to-year growth of nearly 23%, and a full $75 over the state as a whole. This shows that there’s both opportunity to invest in the space that is already there and enormous opportunity for this sector to grow.
At Origin Capital, we do the research to find the underlying story of a city’s economy, culture, and people, and how each element impacts real estate. We invest in high-impact properties, both commercial and MDU, and expertly capitalize them to increase their worth. We know that Austin is a growing city and we want to help our partners get in on the opening act.
If you are a real estate investor looking to broaden your portfolio and join other investors in major developments in Austin or any other city we target, Origin Capital Partners would be excited to work with you. At Origin Capital Partners, we have a powerful connection with the cities we invest in and we understand what makes them tick. We know which areas are booming and which commercial and residential investments will make the most sense moving forward. Our Funds deliver consistent returns, because we know how to make sense of the real estate market. Contact us today to talk about how your investments can grow with the city.
