Austin Commercial Real Estate Investment

At the forefront of rapid economic expansion in the United States, Austin, Texas emerges as a prime location for engaging in commercial real estate endeavors.

As the state capital of Texas, Austin has experienced a significant surge in both workforce and business activity, particularly within the technology domain. This influx of growth has drawn the attention of commercial real estate tenants and investors alike, who are attracted to the city's flourishing economy and the promising returns it offers. 

If your goal is to improve the performance of your real estate portfolio, exploring the domain of structured debt in the commercial real estate investment sector can provide notable benefits. What sets this approach apart is its dependence on a steady and reliable cash flow generated through fixed-interest payments. This forms a resilient foundation for investments focused on debt. Regardless of market fluctuations, borrowers consistently meet their monthly commitments, thereby strengthening the stability of your investment's value.

Austin Commercial Real Estate Landscape

Serving as Texas’s capital and ranking as the US’s 11th largest city, Austin stands as a vibrant metropolis that hosts a population exceeding 2.2 million residents. Reverberating with its energetic music and flourishing nocturnal activities, Austin has organically evolved into a nucleus for businesses plus enterprising individuals across all scales. For those in pursuit of investment opportunities, the answer lies within this urban expanse. Notably recognized as the second swiftest-growing city in the country, delving into Austin's commercial real estate market presents an appealing and advantageous prospect.

Austin's Regional Overview

  • Rapid Growth: Being the second swiftest expanding city in the United States, Austin's rapid growth can be attributed to elements such as the influx of business-friendly governance, substantial venture capital investments, and high-tech companies, and the ongoing increase in population.
  • Economic Significance: The Austin-Round Rock MSA boasts a remarkable GDP of nearly $193.8 billion, a figure that has doubled over the past decade. This data, based on the latest information from the St. Louis Fed, underscores Austin's economic dynamism.
  • Millennial Dominance: The metropolitan area holds the top spot for the population growth of millennial. The population of Downtown Austin has soared remarkably by 80% within the last decade.
  • Population Statistics: Austin's populace surpasses 964,000 within the city and approaches 2.3M in the larger metropolitan area. 
  • Millennial Magnet: Austin's allure extends to millennials, as the metro area witnessed the most substantial increase in millennial population compared to other cities in the previous year, as reported by Austin Business Journal.
  • Downtown Transformation: Downtown Austin’s population underwent a remarkable 79% surge between 2010 and 2020, prompting developers to embark on an array of housing projects.
  • Educational Attainment: Roughly fifty percent of the residents hold a bachelor's degree or a higher-level advanced degree, a percentage that surpasses the Texas average by about 1.5 times.
  • Age Dynamics: With a median age of 35.9, Austin maintains a youthful vibrancy. 47 percent of the population falls within the age bracket of 20 to 49 years.

Austin's Flourishing Job Market

  • Hub of Job Creation: Austin has solidified its role as a pivotal epicenter for job creation in the United States, showcasing a remarkable growth rate of 16% from 2016 to 2021. This stands in stark contrast to the national average of a mere 1.8%.
  • Top in Job Creation: A KVUE report highlights Austin's status as the foremost metropolitan area in the United States for job creation. This recognition underscores the city's prowess in fostering employment opportunities.
  • Prominent Ranking: According to WalletHub's evaluation, Austin is poised to maintain its spot within the top 20 cities for job opportunities in 2023. This distinction places it ahead of massive metropolises like Boston and Atlanta.
  • Robust Employment Figures: Close to 1.4M individuals find employment in the Austin metro area, leading to an impressively low unemployment rate of only 2.7%, per data from the US Bureau of Labor Statistics.
  • Thriving Sectors: The job market's vibrant growth is observed in key sectors such as hospitality, leisure, IT, manufacturing, business services, and professional services.
  • Diverse Industries: The city's key industries include space technology, advanced manufacturing, life sciences, financial services, data management, creative and digital media technology, corporate headquarters and regional offices, and clean technology.
  • Leading Employers: Notable companies that significantly contribute to Austin's employment landscape, employing more than 6,000 individuals each, encompass the Federal Government, the City of Austin, Ascension Seton, IBM Corporation, Dell Technologies, Apple, and Amazon.

Office Market of Austin Q2 2023

Source: Colliers

  • Within Atlanta's office market, there remains a noticeable uptick in vacancy rates across the spectrum. The second quarter saw positive absorption exclusively in Midtown, South Atlanta, and West Atlanta, highlighting pockets of growth within the market.
  • As tenants undergo a reassessment of their office space requirements, the ongoing trend to downsize and emphasize flexible work policies remains steadfast. This strategic adaptation is in line with evolving work dynamics.
  • The collective impact is evident in the overall office vacancy rate, which has surged to 17.8%. This figure surpasses the previous peak of 17.5% recorded in 2010, establishing a new pinnacle for the metropolitan area.
  • In the prevailing climate, tenants are poised to maintain an advantageous position, benefiting from a market landscape where competition for coveted locations prevails.

Industrial Market Q2 2023

  • Austin's developers have proactively addressed the shift in supply chain dynamics that has propelled industrial demand on a national scale. They have embarked on the construction of a substantial 15 million sq. ft. of projects, a notable 35.1% of which has already been pre-leased.
  • The second quarter saw a groundbreaking achievement of delivering 4.5 million sq. ft. of new space, with a pre-leasing rate of 30.2%.
  • Reflecting the market's vitality, industrial asking rents have risen by 1.4% since Q1 2023, reaching an average of $11.37 NNN.
  • While net absorption remained in positive territory, there was a significant decline to 693,845 SF in Q2. However, the forecast indicates a rebound in the latter half of 2023, driven by the anticipated launch of several major pre-leased projects.
  • In a noteworthy trend, market-wide vacancy witnessed a three-percentage-point surge during the second quarter. This can be largely attributed to a surge in substantial speculative deliveries at the northern and southern extremities of the market, contributing to an increase in unleased spaces.

Retail Market of Austin Q2 2023

  • During Q2 2023, the Austin retail market sustained its positive trajectory, marked by a notable decrease of 30 basis points (bps) in vacancy rates from the previous quarter.
  • In the time span between April and May 2023, the construction and mining sector demonstrated remarkable employment growth, registering a substantial increase of 28.0%, equating to the addition of 1,670 jobs.
  • Buoyed by robust demand and the influx of new residents, the market is currently experiencing the active construction of 72 projects. This collective effort is contributing to the creation of almost 2.6 million sq. ft. of retail space that is presently in progress.
  • The second quarter of 2023 witnessed the completion of 12 projects, which collectively contributed more than 500,000 sq. ft. of fresh retail space to the market.

Multifamily Market Q2 2023

The Austin multifamily sector remains at the forefront among the largest 50 markets in the nation, showcasing the highest annual net absorption as a proportion of its inventory. 

  • Nonetheless, Austin is navigating a considerable influx of new supply, evident through its ranking as the city with the third-largest construction pipeline across the country. Although the yearly volume of units sold is exhibiting a deceleration, investor confidence in Austin persists. The market demonstrated resilience with an impressive $2.3 billion in sales volume over the past 12 months. Presently, the market operates at a 4.3 percent cap rate.
  • Downtown Austin is actively fostering more than 2,800 units in development, encompassing 45 percent of the submarket's existing inventory. 
  • The city has marked significant demand growth, with the absorption of 6,300 units within the past year, solidifying its place as the second-highest in the country when considering the percentage relative to inventory.
  • Rent growth is most pronounced in the suburbs of Austin, particularly in locales like Far North Austin, Bastrop County, and Caldwell County, which are steering the market's upward trajectory.
  • Within the Austin metropolitan area, a substantial 42,000 units are presently in various stages of development. This figure positions the region as one of the premier markets in the nation for apartment construction.

Bottom Line

Austin's commercial real estate market is a dynamic landscape brimming with potential for investors seeking high returns. With a thriving economy, population growth, and a diverse range of investment options, Austin stands out as a compelling destination for those looking to capitalize on the city's upward trajectory. As with any investment, thorough research, a well-defined strategy, and expert guidance are paramount to harnessing the full potential of Austin's commercial real estate market. Whether it's office spaces, retail outlets, or multifamily developments, the opportunities are as vibrant as the city itself.

Renowned as a prominent platform for alternative investments, Assetmonk sets itself apart with its remarkable expertise in the intricate domain of structured debt within the commercial real estate sector. With an accessible entry point starting as low as $12,000, Assetmonk holds a strong sense of satisfaction in delivering unique and tailored investment avenues to its esteemed community of investors. By harnessing the extensive capabilities of the Assetmonk platform, investors gain the chance to envision a substantial Internal Rate of Return (IRR), reaching an impressive pinnacle of 17 percent.

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