There’s no question 2022 has been a good year for the economic development of Austin. The issue is whether that growth can be sustained into 2023. There are mixed signals.
On one hand are recent announcements of a $2.2 billion master plan development north of the city, called Pearson. Included over its 10-year buildout are hundreds of apartments and individual residences, 2.6 million square feet of Class A office space, restaurants, retail, hotels and parkland.
To the east near the Austin airport, a 207-acre mixed-use project called Velocity City will see seven million square feet of apartments alongside retail, restaurants and entertainment attractions. On the city’s south side, beside the Colorado River, zoning approval has been granted for six highrises, one as tall as 47 storeys, on a 19-acre site where apartments, a hotel and, of course, more retail and restaurants are planned.
These are samples of announcements made over the past month or two. Numerous other projects are breaking ground or nearing approval at other locations around the city.
Vigorous expansion of commercial space illustrates a steady post-COVID return to regular office work and Austin’s continued attraction to companies relocating to Texas.
In fact, a Q3 Avison Young report says, “Austin continues to act as a U.S. leader for office employment growth. Austin’s urban submarkets (CBD, East side, South Central, and North Central) have captured over 50 per cent of all leasing activity so far in 2022.”
Subletting activity has simultaneously decreased by 64 per cent, indicating regional strength.
Some 8.5 million square feet of office space is currently under development, the report says. Overall, it’s reported Austin’s inventory of new space is larger than nearly every city in the country at this time.
Austin has the advantage of wide open spaces on which to expand, unlike other major U.S. metropolitan centres more geographically constrained. The result is industrial and commercial sprawl on a scale not seen elsewhere. Developers continue to snap up hundreds of acres on the outskirts of the city in anticipation of continued economic and employment growth.
However, all is not entirely well. There are fears a nationwide recession could upend, or at least slow, further growth.
Contrary to the Avison Young report, commercial real estate giant Colliers says vacant sublease availability in Austin is more than double historic rates, rising 66 per cent since Q1 2022 to 3.6 million square feet.
“Q3 2022 saw a softer office market as activity slowed tremendously,” the report says. “Many companies put their office leasing inquiries on hold and capital markets (sales) have been almost nonexistent due to the ambiguity of interest rate stabilization. For the sake of retention and winning deals, we are starting to see landlords show flexibility in lease terms and willingness to offer competitive incentive packages.”
Happily, unemployment in Austin remains below nationwide levels at 3.1 per cent. Therefore, Colliers notes while leasing has stalled somewhat, it does not see asset sellers considering lowering their offer prices in order to move product.
Nevertheless, pullbacks among major tech companies will result in a drop of commercial space activity.
For example, Meta, parent company of Facebook, announced in November that it would not follow through on plans to occupy space in the 66-storey complex known as Sixth and Guadalupe. Meta had intended to add 400 more employees to its Austin headcount of 2,000 this year. However, in the face of harder times, the company has decided instead to consolidate its nationwide office space.
Other tech giants could also make similar reductions.
This time last year, Amazon had more than 3,000 tech employees located on Austin’s north side, but has recently announced nationwide job cuts across all its operations in the range of 10,000. The effect on Austin could be significant.
Meanwhile, Google’s parent Alphabet announced in July a slowdown in new hiring for the remainder of 2022. That was followed by reports that Google managers had been charged with identifying about six per cent of current employees, some 10,000 in total, as low performers, leading to speculation concerning actual layoffs. Apple has also announced hiring freezes through to September 2023.
Austin’s meteoric growth has been founded, to a great degree, on the arrival of highly paid tech employees numbering in the thousands. Dependency on one industry sector always leads to vulnerability. Although many tech layoff announcements remain to be finalized, commercial developers are holding their breath, hoping the other proverbial shoe doesn’t drop in 2023.
Recent Comments
comments for this post are closed