Austin, Texas, sits at the pinnacle of the country’s commercial real estate sector right now. But recent economic wins like the planned $1 billion campus for Apple and the new headquarters of the U.S. Army’s modernization initiative should keep the city standing tall for years to come, panelists said on October 8 at a ULI Austin luncheon.
In December 2018, Cupertino, California–based Apple announced that it would build a $1 billion corporate campus in Austin with room for 15,000 employees. That project will supplement an existing 7,000-employee Apple campus in the same part of Austin. If Apple were to employ 22,000 people in Austin, that would make it the region’s largest private employer and the third-largest employer overall. As has been the case with homegrown Dell Technologies, Apple veterans are expected to spawn a number of tech startups in the Austin area.
Five months before the Apple news, the U.S. Army said in July 2018 that it had picked Austin for the coveted headquarters of its Futures Command. Today, the modernization hub employs about 500 active-duty and civilian personnel, many of whom work from the Austin headquarters of the University of Texas System. At the ULI Austin luncheon, panel moderator Jeff Coddington, senior vice president in the Austin office of JLL Capital Markets, predicted that the tech-focused Army Futures Command would be a magnet for every major defense contractor to establish a presence in Austin.
In a comment that easily could extend beyond his reference to investment properties, ULI Austin panelist Rob Gandy, founding principal and managing partner of Austin-based commercial real estate investor and developer Cielo Property Group, said: “Everybody wants a piece of Austin.”
Coddington led ULI Austin panelists in a discussion of the Austin economy and, more specifically, the area’s commercial real estate landscape on the heels of Austin being anointed number one for overall real estate prospects among the 80 U.S. markets ranked in the Emerging Trends in Real Estate® 2020 forecast. ULI and PwC join forces to produce the annual outlook.
ULI Austin panelist Andy Warren, director of real estate research at PwC and coauthor of Emerging Trends in Real Estate® 2020, emphasized that Austin scored so well in the forecast because it ranked in the top 10 of every property type that was featured.
Gandy stressed that aside from Apple and the Army, big employers like Amazon, Facebook, and Google are bulking up their presence in Austin to entice workers—particularly those in pricey locations—who are hunting for a top-notch quality of life and relatively affordable housing.
In that vein, Coddington noted that after investment manager PIMCO decided in 2018 to establish a 200-employee outpost in Austin, the company asked whether any employees at its headquarters in Newport Beach, California, or its office in New York City wanted to transfer to Austin. According to Coddington, 800 PIMCO employees expressed interest in relocating to Austin, presumably to escape higher-cost locales on the East Coast and the West Coast.
Employers like PIMCO, Apple, and the U.S. Army are largely responsible for propelling the continued population boom in Austin and, as Gandy pointed out, are contributing to Austin’s diverse, resilient economy. The Emerging Trends in Real Estate® 2020 report indicates that the Austin area boasts the highest projected population growth rate (2.2 percent) for the coming five years among the 80 U.S. markets analyzed.
Coddington said that Austin’s population trajectory is “one of the ways that Austin is completely nuanced and different from many of the markets in the report. That’s going to drive demand for different types of space, and also create some challenges and opportunities for us.”
Among the challenges, panelists said, are increasingly jammed-up traffic, a nagging shortage of housing, and steadily rising costs for office and residential space. In the second quarter of 2019, asking rents for office space in Austin averaged $46.61 per square foot ($501.70 per sq m), compared with $29.65 ($319.15 per sq m) in Atlanta and $41.68 ($448.64 per sq m) in Boston, according to JLL.
ULI Austin panelist David Knoll, vice president of real estate development in the Austin office of developer Ryan Companies, said that as Austin tries to overcome those challenges, it can learn from places like San Francisco and Seattle that have been weighed down by these issues.
“I don’t have any of the answers. . . . There are ideas out there,” Knoll said. “It takes a lot of commitment, leadership, and conviction [to solve these problems], but we can certainly get there.”
On the opportunity front, Coddington believes that the Army Futures Command headquarters will “be the one big thing that blows this economy up in a positive way over the coming 10 to 15 years,” in large part because he thinks that every major defense contractor will want to locate in Austin in the near future to be near the U.S. Army operation.
ULI Austin panelist Vaike O’Grady, Austin regional director of residential data provider Metrostudy, said that she thinks the Army Futures Command represents one of the top forces behind Austin’s growth potential, alongside such factors as the opening in 2016 of the Dell Medical School at the University of Texas and ongoing expansion of Austin-Bergstrom International Airport.
“There are just opportunities galore in Austin. I think that’s what’s so exciting about living here,” O’Grady said.