4
AUSTIN BUSINESS JOURNAL
COVER STORY
Let the good times keep rolling —
at least through 2018
That’s the prediction
from a venerable
Austin economist
WHAT’S EXPECTED
Of course anything can happen, but all signs point to an even stronger Austin economy for the foreseeable future.
BY MICHAEL THEIS AND
COLIN POPE
-2,100
MANUFACTURING
MA
A welcome respite
Austin’s unemployment rate has been
very low for a long time, hovering near 3
percent for more than a year. While that’s
good news for job seekers who hold an
advantage in salary negotiations when
unemployment rates are low, it can also
hurt economic expansion as employers
have to pay higher salaries to those they
hire — if they can find the right people
to hire at all.
Angelou said Austin’s ideal unemployment rate is closer to 4.5 percent.
While rapidly inflating salaries in
tech are a symptom of the low unemployment, it doesn’t always work out that
way. Local industries where job growth
is the fastest — such as education, leisure
and hospitality and professional/business
services — have actually seen some of the
slowest rates of wage growth.
“Job growth does not equate to job quality in Austin,” Angelou said.
Case in point: One of the region’s fastest-growing job sectors over the next two
years will be trade, transportation and utilities. Regional employment in that sector
has grown by more than 10 percent since
2012, but wages within the sector in the
INFORMATION
INF
NFORM
OR
Jobs gained / lost
2016
2017
1,100
4,209
CONSTRUCTION
UCTI
CT ON
N
OTHER SERVICES
1,500
1,100
1,300
4,800
TOTAL JOBS TO BE GAINED
2017
1,900
1,791
1,800
FINANCIAL
ACTIVITIES
GOVERNMENT
2018
600
1,000
1,000
1,40
1,400
u
More than 100,000 new residents will
arrive in Austin over the next two years
as the population and economy continue
to grow, but at a slightly slower pace than
what the region is used to.
That was the broad takeaway from economist Angelos Angelou’s annual economic
forecast, delivered Jan. 26 in an inaugural
web conference hosted with Austin Business Journal. Angelou is the founder and
principal at AngelouEconomics, an Austinbased economic consultancy that has been
producing regional economic forecasts for
more than 30 years.
Recent economic indicators from the
Federal Reserve Bank of Dallas show signs
of weakening local economic growth, and
Angelou confirmed that.
“The economy is cooling off, but don’t
panic,” he said. “It’s actually good for Austin. Too many years of high growth have
led to unintended consequences — rising
housing costs, mobility is an issue, and the
availability of talent is a big issue for a lot
of companies.”
AUSTIN JOB GROWTH 2016-18
-100
600
29,400
(3.0%)
34,500
(3.4%)
2018
2,200
1,800
EDUCATION
AND HEALTH
4,000
4,000
4,500
5,400
5,264
LEISURE AND
HOSPITALITY
6,000
5,600
PROFESSIONAL/
BUSINESS SERVICES
TRADE,
TRANSPORTATION
AND UTILITIES
5,000
6,400
6,800
7,200
6,200
AUSTIN REAL ESTATE ABSORPTION THROUGH 2018
Office
Retail
Industrial
3.1 MILLION
SF
2.4 MILLION
SF
2.4 MILLION
SF
region have fallen slightly in that time. It
is the only sector in Austin to see wages
shrink over the past three years.
Speaking of shrinking, the manufacturing sector is the only one with a smaller
headcount but Angelou said that shouldn’t
concern anyone — it means the economy is
simply evolving.
“We still have major manufacturing
companies in Austin making computer
and telecommunications chips, but most
of what’s happening here now is the design
of those chips — which are actually higher
paying jobs and we have a plethora of those
opportunities,” he said.
Building won’t — and can’t — stop
Angelou expects the building boom to
continue strong through 2018 — perhaps
surprising many who have watched the
economy grow for seven years straight.
But affordability — at both the commercial and residential levels — remains a big
challenge. Angelou’s statistics show that
Single-Family
Multifamily
26,000 UNITS
24,500 UNITS
Austin’s affordability for everything except
housing is lower than the national average.
But, because housing is often a household’s
biggest expense, affordability is certainly a
problem for many locals.
About 25 percent of Austin-area renters spend more than 50 percent of their
income on housing; the rule of thumb is
30 percent or less. Single-family home
prices have increased faster than wages in
the region, making it harder for the typical
household to afford a house. Angelou said
5
FEBRUARY 3, 2017
Austin
3.3%
1.4%
3.2%
1.8%
(millions)
2.01
2014
1.94
12%
16.8%
2.6%
51%
AUSTIN RETAIL
$41
$39.1
3.3%
TEXAS
S JOB
GROWTH
TH
H
22%
3.3%
$35.8
$31.07
$33.56
56
Tech-related
professional services
8%
Tech
manufacturing
12%
6%
22%
15%
2014
2015
Retail Sales
2016
2017
2018
Growth Rate
there are simply not enough new homes
being built.
Home prices have increased between
7 and 8 percent annually in each of the
past three years. In that same time, average wage growth in the region has fluctuated between 3.8 percent and 0.3 percent.
Angelou sees an opportunity for homebuilders, and especially for apartment
builders who may not have noticed that
new construction is about flat but population growth isn’t.
Average salary for local tech jobs.
12%
And for homebuyers, the message is to
buy as soon as possible because prices are
expected to only go up through 2018.
Commercial real estate is more expensive in Austin than in other major Texas
metros in almost all categories. At $34.83
per square foot for office space and $9.27
per square foot for industrial space, Austin
is more expensive than Dallas and Houston.
Retail is the sole exception, where Houston
takes the cake at nearly $25 per square foot
compared with $20.93 in Austin.
Houston
San
El Paso Austin
Antonio
Number of publicly traded
companies in Austin — led by Whole
Foods Market Inc.
32%
Roughly how much
office space is vacant in the area
— much looser than industrial’s 5%
average and retail’s 3.5% average.
Information
technology
.3%
2013
$90,000
199
8%
2.1%
Computer and
supplies wholesale
2018
Approximate
increase in office space costs per
square foot across the region since
2011.
2.5%
15%
7%
2017
36
51%
9%
2016
Number of deals
venture capitalists did with local
startups in 2016. They funneled about
$978 million through those deals. VC
funding dipped after a big year in 2015.
TECH SECTOR
WORKFORCE
BREAKDOWN
$44
Retail sales (billions)
2015
Banks
Median price for an Austin-area home in
2016 — about 7% more than in 2015.
Housing
Starts
0.2%
0.1%
2018
454
$280,000
-36%
3.6%
Unemployment
2017
466
BY THE NUMBERS
VC
Funding
9.2%
-0.3%
2016
476
Deposits
2.9%
2.0%
3.6%
2.1%
2015
476
NUMBER OF BANKS VS.
VOLUME OF DEPOSITS
Retail
Growth
2014
468
Texas
Average
Wage
Business
Growth
$41 billion
Employment
Growth
Population
Growth
$34 billion
2.12
2.07
AUSTIN
POPULATION
THE YEAR IN
REVIEW
$41 billion
A snapshot of some important economic metrics for the Austin region.
$37 billion
2.18
WHERE WE STAND
(52,000)
$40 billion
COVER STORY
(55,000)
Dallas
Still, Austin has a tight retail real estate
market, with a mere 3.5 percent vacancy
rate. Since 2011, office rents have risen by
32 percent, industrial rents have risen by
38 percent and retail rents by 19 percent.
“Housing affordability and mobility
are our biggest challenges,” Angelou said.
“How we address those issues is going to
impact how long a boom we will have. If we
fail to make those investments, then I fear
our economic development could come to
a halt.”
3 to 1
Approximate
ratio of homes sold to homes started
in the Austin area during 2016 — there
were 2.6 times more sales than starts.
Housing inventory is an anemic two
months.
Q
AngelouEconomics’
full economic forecast
can be ordered online. The
2017-18 forecast is available now,
and there’s also an opportunity
to sign up for industryspecific quarterly forecasts
on health care, real estate and
technology later in the year.
Visit angeloueconomics.com