Austin took the #1 spot on our list of the top 20 markets for real estate investing in 2022. Not only do we see big opportunity for real estate investors in Austin, we also see it in several different property types. Of the seven asset classes we included in our annual report, Austin ranked:
#1 for build-to-rent
#2 for office
#2 for retail
#3 for multifamily
We’re excited about the real estate investment opportunities in Austin and here’s why.
1. Unlike other U.S. markets that have struggled with the shift back from work-from-home, office occupancy in Austin has grown in the last year.
Austin ranks #2 for office
With a record-smashing 2021, in which nearly 27,0001 new jobs were announced from corporate relocations and expansions, it’s no wonder that Austin led the nation in people returning to the office. Austin’s post-COVID economic recovery has also been aided by strong job growth, as more and more corporations look to expand or move their operations1 to the metro. Among the largest corporate announcements in 2021 was the news that Samsung would be investing at least $17B into a chip-making plant in the metro, a deal that Governor Greg Abbott called2, “the largest foreign, direct investment in the state of Texas, ever.” Meanwhile Tesla, the 2nd largest3 publicly traded business based in Austin, which relocated to the city in 2021, is finishing construction on its $1.1 billion4 electric vehicle manufacturing facility in the metro.
2. As of November 2021, consumer spending was up 51.8% (compared to January 2020).
Austin ranks #2 for retail
After a year where COVID fears kept many at home, 2021 emerged as a year of growing consumer confidence. Many major events returned to Austin, including the Austin City Limits music festival, the US Grand Prix, and the Austin Food + Wine Festival. The tourism around these events coupled with holiday shopping trends invigorated the local economy, strengthening the overall retail market. Occupancy in the retail sector continued to tighten (i.e. retail spaces had less leasing availability) in Q4 2021, reaching 95.9% occupancy and average asking rates increased in response to the limited availability of space.
3. Consistently low housing supply, rising home prices, and rapid population growth seem to be creating demand for multifamily and build-to-rent projects.
Austin ranks #1 for build-to-rent and #3 for multifamily
Between 2010-2020, the Austin metro saw 34%5 population growth, making it the fastest-growing5 big metro in the U.S. With ample leisure activities, a reputation as the live music capital of the world, no state income tax, relative affordability, and a robust job market, it’s not hard to see the appeal.
All of these new Austinites have one thing in common: they need a place to live. And while there are more homes6 being built, listed, and sold than ever before, Austin is still nowhere near being able to meet the demand. A six-month6 inventory of housing supply is considered to be a signal of a healthy housing market–as of December 2021, Austin had a .6 months6 supply. With supply this at odds with demand, home prices continue to rise rapidly in Austin (up 31%6 in 2021).
Along with supply issues in the housing market, Austin’s multifamily market is facing tightening vacancies, contributing to rent hikes. In Q2 2021 alone, the average apartment rent jumped 7.1%, the strongest annual gain since early 2016, with vacancy rates at 5.1%.
Build-to-rent communities are a way to bridge the affordability gap for those who want the space of a home, but may not be able to come up with a down payment in an environment where home prices continue to climb. On the rise before the pandemic, this property type has only grown in popularity7 since COVID changed what many people expected from their living situation, including a newfound emphasis on increased space to accommodate working from home.
What this means for investors:
Austin’s meteoric population growth shows no signs of slowing in 2022, as companies continue to bring jobs to the area and attract even more new residents. Generally, more people means more demand for housing, and with no end in sight to the metro’s issues with housing supply and affordability, we believe that 2022 will be a year of opportunity for multifamily and build-to-rent projects. As rent increases due to demand, investors in these types of deals stand to earn greater distributions (i.e. regular cash payments as determined by the business plan) as the property brings in more income.
As office space becomes a hot commodity thanks to the corporate relocations and expansions in the area, there is also the potential for these properties to increase in value, which could benefit investors if/when the property ultimately sells. There is also the chance we’ll see increased rents in office space, which could translate to higher distributions to investors. In terms of retail, we expect consumer confidence will continue to grow in 2022, strengthening the overall retail market and the real estate that supports it.
- Hardison, Kathryn. “Austin Metro's Record-Smashing Year Ended with Nearly 27K Jobs Announced from Relocations, Expansions.” Bizjournals.com, 13 Jan. 2022, https://www.bizjournals.com/austin/news/2022/01/13/nearly-27k-jobs-announced-in-austin-in-2021.html.
- Hardison, Kathryn. “'Bringing a Global Society' to Taylor: Reaction Pours in to Samsung's $17B Decision.” Bizjournals.com, 24 Nov. 2021, https://www.bizjournals.com/austin/news/2021/11/24/samsung-picks-taylor-experts-react.html.
- Anderson, Will. “Elon Musk: Tesla HQ Will Relocate to Austin from California.” Bizjournals.com, 7 Oct. 2021, https://www.bizjournals.com/austin/news/2021/10/07/elon-musk-austin-tesla-headquarters.html.
- Hardison, Kathryn. “Tesla Built $1.1B Austin-Area Factory in a Year and a Half - Here's How It Looks Now.” Bizjournals.com, 10 Jan. 2022, https://www.bizjournals.com/austin/news/2022/01/10/how-tesla-built-its-austin-area-factory.html.
- Hardison, Kathryn. “Austin Remains Nation's Fastest Growing Major Metro.” Bizjournals.com, 4 May 2021, https://www.bizjournals.com/austin/news/2021/05/04/census-data-austin-metro-population.html.
- Pitcher, Michelle. “More than $23B Changed Hands in Austin's Housing Market in 2021.” Bizjournals.com, 18 Jan. 2022, https://www.bizjournals.com/austin/news/2022/01/18/abor-2021-overview.html.
- Rohit, Parimal M., and Mitchell Parton. “Single-Family Home Rental Trend Supercharged by Austin's Tight Housing Market.” Bizjournals.com, 20 May 2021, https://www.bizjournals.com/austin/news/2021/05/20/not-for-sale-single-family-rental-developments.html.