Why Austin is Well-Positioned for an Economic Downturn
Q3 2022 Austin Office Outlook
Let’s talk about the elephant in the room; according to Fortune.com, nearly 70% of U.S. economists are predicting a recession in 2023, and whether this will be a “soft landing”, or an all-out global market crash is yet to be seen. On one hand, we are seeing strength in the U.S. labor market with job growth beating expectations month after month, the unemployment rate declining (Austin is currently below 3%), and the labor force participation rate remaining solid. On the other hand, we are experiencing the highest inflation in 40 years, with three interest rate hikes so far this year from the Federal Reserve and talk of more to come before the end of the year, according to the Associated Press.
So, what implications does this have for the Austin commercial real estate market? The key factors in this regard are population growth, the city’s current economy, and the continuation of companies relocating to Texas. The University of North Carolina’s Kenan Institute of Private Enterprise recently ranked Austin as the second-fastest growing economy in the country with local GDP growth of 4.3% this year and says “Austin’s status as a technology hub along with its high concentration of venture capital, warm climate, and vibrant cultural offerings lead to frequent comparisons with the Bay Area – and in fact, high-profile Silicon Valley companies, including Amazon, Google, Oracle, and Tesla, have recently expanded their operations in Austin”. In addition, the Austin Business Journal states that “2021 was a record year for corporate relocation and expansion announcements in the Austin metro, with 26,697 jobs announced across Central Texas.”
It is no secret that Austin’s population is booming, and this population growth is also bolstering other cities in the Austin area. In May, the Census Bureau ranked Georgetown and Leander as the two fastest-growing cities in America from July 2020 to July 2021 on a percentage basis (10.5% and 10.1%, respectively). This growth is expected to continue for the foreseeable future. Drew Scheberle, Senior Vice President of education and talent development for the Austin Chamber of Commerce, reports that the population is expected to reach 4.5 million in 2040. This and new mixed-use developments being announced almost weekly, local leaders, developers, and investors are still bullish on the future of the Austin economy and real estate market.
Due to this combination of factors, we believe that Austin’s unique position and unprecedented growth make the city well-equipped to withstand an economic downturn of any size and is likely to outperform other major cities in this event. While this might not completely shield Austin from the effects of a global recession, this should cushion the blow and help the city to weather the storm to move towards a quick recovery.