2015 Texas Midyear Review, Part I

Of the 3218 counties in the US, only 65 have fully recovered from the recession. By “recovered”, we mean that employment is back to prerecession numbers, GDP is same or better, and real estate values are at or better than prerecession. It’s important to understand this context when talking about the market in Texas, where all of our major metros have recovered and surpassed prerecession benchmarks.

Over the next few blog posts, I thought it would be appropriate to review the fundamental numbers of each major Texas metro. This piece will focus on Austin.

Jobs

The economic success of Texas and it’s major metros stems from robust job creation. The state’s economy gained 276,400 nonagricultural jobs from June 2014 to June 2015, an annual growth rate of 2.4 percent compared with 2.1 percent for the United States.

Austin added 32,200 net new jobs, or 3.5%, in the 12 months ending in May 2015, making it the eighth fastest growing major metro in the US. Travis county has the third best growth rate for counties over a million in the country.

May’s 2015 year-over-year job growth is higher than any month since last October 2014. In the same time frame, the number of unemployed has declined by 10,039 or 23.3%. At 3.2%, seasonally adjusted unemployment is at its lowest level since before the early 2000s “dot-com” recession for the city.

Single family residential

June 2015 MLS statistics

  • 3,051 – Single-family homes sold, five percent more than the previous year in June 2014 and an increase from May 2015 of almost 300 units, a 9% increase.
  • $272,250 – Median price for single-family homes, eight percent more than June 2014. Not varying much from previous month, only $2500 more.
  • $333,866 – Average price for single-family homes, two percent more than June 2014. Due to more inventory in lower price points we saw average values decrease this month ($15,000) from the previous month.
  • 42 – Average days on market, a continued sign of a healthy market. 24 days better than the nations average.
  • 3,812 – New single-family home listings on the market, three percent more than June 2014. Down from the previous month. For a population of close to two million in the metro, these is not enough to keep up with demand.
  • 8 – Months of inventory of single-family homes, unchanged compared to June 2014. It continues to be a sellers’ market, with little room for negotiation on asking values.
  • $1,018,625,166 – Total dollar volume of single-family properties sold, eight percent more than June 2014. This is the first time ever of over a billion in home sales in the Austin area.

Multifamily residential

For a number of years now, occupancies in central Texas have stayed at a very healthy 93 – 96%. At the end of June 2015, occupancy stands at 93.6% Equity and investors have aggressively pursued product in this market, which is one of the reasons multifamily sales and construction have been so strong.

Rent values continue to increase, even with over 16,300 new apartments brought to the market in the last two years. Average rents have grown more than 32 percent in the same timeframe. With the number of units brought to the market, you would think occupancy and rent values would drop. Yet the market has absorbed all new units, and is clamoring for more. The strength of this market has helped investors in all classes of residential investments. Sales have been brisk, with most well valued properties receiving multiple offers.

Strong demand combined with the slower entitlement process for real estate development has heightened demand for housing. The undersupply of housing is elevating both single-family home prices and apartment rents. Since 2007 the median single-family home price rose 37+/-% and is one of the reasons a large share of the metro’s sizable young-adult population are pushed to the suburbs, unable to purchase homes in desirable areas. This, in turn, is driving demand for area apartments in CBD and inner ring neighborhoods.

Retail

Deliveries of new retail in Austin will be below the past three years’ retail boom, as builders bring just 500,000 square feet of retail space online during 2015. Last year, retail developers completed 726,000 square feet of retail space in the five county Austin area. During the last four quarters retail developers completed approximately 370,000 square feet of retail space, including 35,000 square feet of space brought online in the first quarter of 2015

The largest concentrations of new retail were 90,000+ square feet of space concentrated in the Cedar Park area. South Austin followed, with nearly 70,000 square feet of space. The largest project under construction in the Austin metro is the 82,000-square-foot retail portion of South Lamar Plaza in South Central Austin. The retail portion is scheduled for delivery midyear and consists of retail, restaurants and theater space already open. The mixed-use project also contains apartments.

Strong preleasing and rising demand from retailers to expand in the market kept occupancy above 95%, continuing the trend of the last three years. These numbers are dramatically better than the rest of the nation and reflects the strength of the market locally. Tightening conditions in the metro and a lack of new supply coming online will contribute to asking rents rising 3.5 percent to $18.89 per square foot this year. Average asking rents grew 2.8 percent in 2014.

Competition for single-tenant assets remains fierce, forcing some buyers to shift their focus to two- to four-tenant strip centers, leased by na­tional and regional credit tenants, on outparcels of anchored developments.

Office

Approximately 2.9 million square feet of office space will come online in 2015, up from 1.1 million square feet last year. The three largest office buildings that opened during the first quarter averaged 78 percent full. This aggressive preleasing shows the huge appetite for office space in the Austin metro. Strong net absorption is projected to continue this year, tightening vacancy and lifting market rental rates.

Despite the surge in deliveries throughout the metro this year, which will reach 3.2 million square net absorption feet in 2015, occupancy is still around 88%. Asking rents will advance 4.8 percent in 2015 to $29.43 per square foot citywide. Last year, rents increased 4.3 percent.

Forward

The Texas metros have been blessed in their recovery from the recession with some of the shortest turnaround times in the nation. Locally and regionally we sometimes forget that and think the rest of the nation must be doing just as well.

We are over three and a half years into this positive market. Six years is the longest positive run I’ve seen in my 35+ years in the region. With job creation and demand continuing, Texas still has a ways to go for supply to catch up to demand. It’s not bragging, just facts.

Hopefully, these numbers will convince you of the robustness of the Austin market. We will visit Dallas and San Antonio in the next few installments.

 

 

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