Construction Cycles in Austin, TX – Where are we now?
January 26, 2016
by Mark Daniel, Vice President of Partner Relations at RealMassive, A.B. Economics Stanford University
Construction cycles typically vary by geography and project type – though some booms and busts (ala 2009) can be generally felt in most metropolitan areas, while factors that hit specific sectors (like oil and gas) can create counter-cyclical activity in dependent metro areas.
Austin, Texas is considered a tertiary market by most capital sources, yet this current cycle has attracted an unprecedented amount of attention, and money. Apartment construction in particular has risen to levels never tested, has stayed there for years, and the new properties are filling up quickly and at rents well above the historical norm, even when adjusted for inflation. Asking rents for office space in the CBD stand at $37psf/yr *(source: www.RealMassive.com). For comparison, the Uptown/Turtle Creek submarket in Dallas comes in around $31.
But let’s take a step back and consider construction of all property types in the Austin market.
Using data from the Travis County Central Appraisal District, I was able to reconstruct construction starts going back 100 years. I decided only to animate the last 15. Below is a short loop of the visualization, you can click here to see the entire 15-year loop.
The tax appraisal data includes latitude, longitude, year built, and appraised value, among other fields.
Rather than map number of properties, I chose to map the value of the properties to better represent the “hot spots” as they relate directly to total dollars of construction activity (for taxable and exempt structures).
In the full version of the video it’s interesting to see the various cycles captured since 2000. The image below shows the boom and bust from 2006 – 2009. The full length video, available here, shows the explosion in more recent activity starting in 2011, especially in the CBD.
Map courtesy of Project Atlas, a visualization platform designed specifically for commercial real estate research. Click Here to view the full video.
So where are we in the current cycle? This boom has been large and extended. I don’t believe in calling for retraction in a market or region simply because it’s “overdue.” It will always come down to fundamentals like in-migration (very strong in Austin) job growth (good but slowing) and availability of capital (which has become much more cautious about Austin in general). Austin also has significant infrastructure challenges that could be the subject of an entirely separate blog. But without writing a long missive, I think it’s fair to say that things appear to be cooling off in Austin today, and that includes capital’s appetite for construction risk here (and by “cooling off” I mean at what remains to be historically high levels). Will we overbuild? Probably, but not likely in epic fashion. And all things being equal (recessions and crises aside) Austin should continue to outperform most other metro areas for the next few years.
If you have a dataset of construction starts that you would like to see animated for a specific market (free of charge), click here and we will help import your data into the Project Atlas platform.