Austin Real Estate Market Lands Top Spot for 2020 in Annual Report
January 15, 2020 | Front Porch Realty
According to the Emerging Trends in Real Estate report, Austin rose to the top spot for overall real estate prospects after being ranked sixth last year.
“The last 18 months roughly has been one of the more static periods for Austin’s housing market. I don’t mean static in a bad or negative sense. I only mean the sense that whatever was said 18 months ago is not much different than what was said this week,” says a veteran real estate pro whose real estate career extends back to the Ronald Reagan years. In fact, many of our interviewees and focus groups noted the positive character of recent activity in the property development and investment field.
This does not mean that we are in “Groundhog Day” loop. Most of the experts in the real estate business are following through on sentiments and business plans that have served them well over the past year in real estate and housing markets and are look like a solid roadmap for the future.
That is exactly what a trend should produce—confidence that a market or business should not try to start from scratch every year. If you have thoughtfully assessed your resources, been careful about your objectives, and lined up the physical, financial, and human assets needed for success your approach should be similar if not identical moving forward.
Trends—by their nature—are dynamic. Time is a stream, not a frozen pond. That stream runs toward the future, and each year puts some conditions into the past, and brings some conditions closer to realization. If the pace is gradual, we may hardly feel the changes as they happen. But they are happening even if subtly.
That is exactly what a trend should produce—
That is one reason Austin’s real estate market receiving the top spot is so exciting. When change is so subtle that it may escape notice, that’s when it’s worth paying careful attention.
Trends, by the way, are just one form of change. Our discussion of trends keeps in mind that the world, the economy, and the real estate business are subject to other kinds of influence.
Cycles are perhaps the most prominent feature in the real estate and housing industry, and we discuss late-cycle behaviors often in relation to any market analysis. Trends typically persist longer than cycles. We examine the potential impact of the decades-long deceleration of the U.S. economy on real estate as we emerge from the next recession: slower demand over the decade of the 2020s.
Maturation is another form of change, generational aging as well as the aging of our infrastructure. Will future cohorts continue patterns of previous generations? Boomers have frustrated pre- dictions since they burst upon the scene, and advances in life sciences may permit them to do so again in their 70s and 80s. Our infrastructure, meanwhile, could use rejuvenation and may be seeing an infusion of capital at the state and local levels even as entropy rules in Washington.
Technology continues to present disruption
Technology continues to present disruption as both a risk and an opportunity. We should not rule out the capacity of capital markets to be a disrupter either. The abundance of capital for debt and equity is a feature of markets for now. But capital markets are notoriously fickle and real estate veterans are well aware of how quickly capital can be dammed up.
Physicists recognize “change of state” as another time-based phenomenon affecting real estate and housing markets. The shift from a blue-collar economy to a white-collar economy profoundly adjusted property needs, as did the dramatic increase in female labor force participation. Today, we are experiencing changes of state in the housing market, which may see homeownership in the 2020s drop to levels not seen since the 1930s and 1940s. We are already seeing such qualitative shifts as the rise of “hipsturbias” in our metro areas. A change in ethos also is observable. The environmental, social, and governance (ESG) movement has taken root in the corporate and institutional investment world. Real estate developers meanwhile, are more aware of the preference for “community” in the places where we live, work, and play.
Co-living is appealing to those in their 20s and 30s
Co-living is appealing to those in their 20s and 30s, who can find some cost savings in the arrangement, but more importantly a group of peers sharing common interests, values, and concerns. As one of our interviewees put it, “This is really serious. These people are feeling a lot of stress. They’re very concerned about climate change. They are very concerned about gun control. They are very concerned about economics.” That may evolve over time. But is not just for the gen Zers and millennials. “Golden Girl” arrangements are popping up more frequently, according to reports from the AARP, bringing cost benefits but also Gemeinschaft.
As “foodies” become more a feature of our society, it might be worth highlighting the growth of urban green markets, which now exceed 8,700, up from just 2,000 a quarter century ago. These are essentially “pop-up retail,” as well as a powerful
link of farm to city, much appreciated by locavores. Add to
that the over 200 retail stores operated by food co-ops across the country, owned by 1.3 million “members” who operate the establishments and who not only create an “intentional commu- nity” but who also support ongoing educational outreach in their neighborhoods and who connect with local farmers.
This is just one example of what is being termed “collaborative consumption,” a feature appealing specifically to millennials and generation Z. Such coordinated consumption seeks to create integrated platforms of products, services, and experiences.
A noted consultancy labels this the effort of “communaholics” whose social media background persuades them that joint activity—even if organized over distance—can foment desired change when focused on a specific place. It is not hard to imag- ine that real estate’s efforts at “placemaking” can gain energy from such a trend.
Markets to Watch in 2020
Conventional divisions often structure discussions into catego- ries that are familiar, but arbitrary. In so doing, they encourage us to keep analysis within boundaries that are expected and easiest to work with. There are many such divisions: Sun Belt versus Frost Belt; gateway cities versus secondary and tertiary markets; strong core areas versus sprawling metro areas. One of the most convenient and most frequently used organizing schemes is that of broad geographic regions, such as the U.S. Census Bureau’s seven regions: New England, the Midwest, the Rocky Mountain states, and so on. However, data sometimes do not respect such clean-cut boundaries. This year, in our explora- tion of markets, we attempt to suss out attitudes and behaviors in the real estate industry by allowing the data to speak across boundaries—by the way Emerging Trends survey respondents sort out the prospects for markets on a national basis, by the way investors actually are allocating their transactions place by place, and by the way the flow of people is shaping up in the present decade. Perhaps, more than the traditional divisions, this may help us understand how capital flows are influenced, how real estate values are supported, and how trends are emerging for the decade to come.
Thus, we present six unconventional groupings of markets. The first is obvious: those that received the highest scores for overall investment and development prospects in our annual survey. But the others cluster markets according to relation- ships between the overall prospect scores and other rankings, such as investment flows or population size and growth rates. For each grouping, a brief explanation of common character- istics linking the markets is offered. We hope this approach contains some surprises that stimulate a fresh look at the 80 markets we review.
Demand: Healthy Going Ahead after a Red-Hot 2018
In late 2018, three forces combined to produce surging logistics real estate demand. First, U.S. economic growth accelerated, driving a faster flow of goods. Second, users of logistics real estate continued to expand distribution networks in order to satisfy rising service-level expectations. Finally, volatile trade policies pulled import activity forward and boosted inventory lev- els. As a result, 2018 net absorption reached its second-highest annual total of the last 10 years with 277 million square feet. Following a frenzied pace of expansion in late 2018, demand returned to a normal, healthy pace of growth in early 2019.
Looking ahead, structural shifts in supply chains should con- tinue to add tailwinds to demand. Several large users of space have publicly declared billions’ worth of investment in their distribution networks as mission critical. As this seismic shift continues to play out, users should incorporate new insights on operational risks and opportunities—including global supplier concentrations, labor availability and costs, and new technologi- cal advancements—into leasing decisions.
With Austin’s real estate market being placed on the top of the list, again, it doesn’t look like demand will slow down anytime soon. For the time being and into the next decade analysts have come to terms with the fact that Austin’s housing market will be continually placed at the top of an endless number of lists that tout most sought after real estate markets and the like. With most buyers still facing heavy competition from all cash offers its not getting easier to find your dream home. If you or someone you know is currently in the market for a new home reach out to our experience team today to help. Call or text (512) 293-7539
