Chapter Profile: NAIOP Austin

Fall 2021 Issue
By: Trey Barrineau
The Austin, Texas, metro area has added about 579,000 residents since 2010, an increase of 34%. The city is the state capital and the home of the University of Texas. Getty Images

The association’s newest chapter sets up shop in the fastest-growing city in the U.S.

Austin, Texas, is the fastest-growing major metropolitan area in the country, according to the most recent data from the U.S. Census Bureau. The Austin metro area has added about 579,000 residents since 2010, an increase of 34%. The city is a key part of the “Texas Triangle,” a region that includes Dallas-Fort Worth, Houston and San Antonio and is home to more than 18 million people — about 70% of the state’s population.

In 2017, U.S. News named Austin the No. 1 place to live in the country. The city offers a high quality of life, relatively affordable housing and a strong job market, particularly in the tech sector. As a result, Austin is attracting many transplants from across the country, and particularly from the West Coast.

That growing population base helps support Texas’ robust commercial real estate industry. According to “Economic Impacts of Commercial Real Estate, 2021 Edition,” published in January by the NAIOP Research Foundation, the industry contributes $65.6 billion to the state’s GDP and supports nearly 430,000 jobs.

Austin is also home to NAIOP’s newest chapter, which launched in 2020. Development magazine asked chapter president Brian Brooke, a vice president with Trammell Crow Company’s Austin Business Unit, to discuss commercial real estate trends in the city.

Development: How are the market conditions for member companies in the Austin area?

Brooke: Market conditions are generally good. On the office side of things, we do still have a fair amount of sublease space to burn through, but leasing activity improved the first half of this year. Rents suffered through COVID-19, but they are already back above where they were in 2019. Despite a tough 2020, Opportunity Austin observed that it was a record year for firms announcing relocations to or expansions within Austin, so most folks believe the recovery will be swift.

In the industrial world, competition for good industrial land is tight, existing product vacancy is low, and institutional capital is clamoring to get in the game. Austin has recently seen trades at record cap rates and record dollar-per-square-foot figures.

Development: What are the challenges you’re facing in either the business or regulatory climate in Texas and the Austin area?

Brooke: Permitting time frames are long and getting longer. Coupled with rising land costs, developers are forced to buy land ahead of achieving full entitlements and receiving necessary permits. This is an added risk, and it increases the cost of development citywide. Austin needs to address the permitting process before it gets even more cumbersome.

Inconsistent density bonus fees make underwriting new developments a challenge. The city needs density to help alleviate rising housing costs, and developers can achieve additional density by participating in a density bonus program. However, the fees a developer must pay via the program to achieve that additional density are not always clear, and the rules often change. This causes unpredictability and adds unnecessary costs to development.

(According to a May 2021 article from the Austin Monitor, Austin’s Downtown Density Program “offers developers more height and density in exchange for on-site affordable housing and/or fees-in-lieu toward housing vouchers and permanent supportive housing for people experiencing homelessness. The projects also must adhere to green building standards and urban design guidelines.”)

Lastly, the labor market is tight and increasingly challenging for employers. In some cases, there are more job openings than there are workers to fill them.  Across the board from the construction industry to the tech industry, firms cannot hire fast enough.

Development: What are the big opportunities in commercial real estate in Austin right now?

Brooke: Build something faster than the next guy.  With the permitting process as long and as challenging as it is and with good developable land hard to find, if you’re under construction now, you’re ahead of the game.

The CRE industry in Austin (and the city as a whole for that matter) can learn from other cities that have experienced similar growth. Austin is well on its way to becoming a “big city,” and we should consider what is and is not working in other big cities such as San Francisco and Los Angeles, and other growing “peer” cities like Denver, Nashville, Phoenix, Raleigh-Durham and even Minneapolis. Public officials as well as Austin’s leading developers should be spending time with the leaders in these other cities (and they are, to some extent) and learning from the mistakes and successes of others. 

Development: What are some of your other legislative priorities?

Brooke: We want to develop some legislation that focuses on improving permitting time frames. Georgia seems to have done so with some measure of success, so following their lead may be a good next step. In line with other NAIOP chapters, we should push back on 1031 elimination and increased property taxes assessed at disposition. Austin cannot afford to move in the wrong direction here.

Development: Education is an important part of NAIOP’s mission. Have there been recent educational sessions specific to the Austin area or your chapter recently?

Brooke: We are still in our chapter infancy, so we have not yet had any, but we’re planning some special educational events for the fourth quarter of 2021.

Development: Tell us about the challenges and rewards in launching a new NAIOP chapter?

Brooke: One of the great things about launching a new chapter is having the opportunity to work very closely with a small group of people. If we were already an established chapter full of hundreds of folks, me and the other board members would not have had the opportunities we’ve enjoyed getting to know the NAIOP membership so well on a personal level.  Building new relationships has been the most rewarding part of the adventure, no doubt.

On the other hand, because we aren’t a large group yet, all the work falls on fewer shoulders. But we’re having fun with it all.

Trey Barrineau is the managing editor of publications for NAIOP.