Austin Coming Back Strong

Aug. 10, 2006
After a crippling blow from the high-tech bust, the Austin, Texas, economy is back in high gear. Austin is enjoying a resurgence in residentia

After a crippling blow from the high-tech bust, the Austin, Texas, economy is back in high gear. Austin is enjoying a resurgence in residential and light-commercial construction work, which suffered when the market’s manufacturing sector lost almost 28,000 jobs from the end of 2000 through December 2003.

The economy has turned around in the last few years. After dropping off in 2001 and 2002, construction jobs are rising again, as relatively low interest rates boost demand for new housing.

Austin is the state capital and home to the main campus of the University of Texas, the largest university in the country. Computer giant Dell and semiconductor manufacturer Advanced Micro Devices (ADM) also make Austin their home. The area also has major operations of tech manufacturing giants Motorola and IBM Corp. Austin claims roughly 30 percent of the state’s high-tech jobs, according to the Federal Reserve Bank of Dallas.

Austin is one of the seven fastest-growing cities in the nation when ranked against other cities with populations of more than 500,000, according to a survey released in April by the U.S. Census Bureau. In terms of 2005 building permits, the National Association of Home Builders (NAHB), Washington, D.C., ranked the Austin-Round Rock metropolitan statistical area (MSA) as the 19th largest single-family housing market in the nation, with 17,080 single-family home building permits issued last year.

Residential building is growing strong. The region’s 14,360 building permits year-to-date through June are up 42 percent from June 2005. Of these, the 10,230 single-family building permits year-to-date through June show 24 percent growth from June 2005.

Herm Isenstein, president, DISC Corp., Orange, Conn., forecasts that electrical distributors in the Austin area will sell approximately $560 million in electrical products this year.

Mike Miller, vice president of Burrus & Matthews Inc., an independent manufacturers’ rep in Houston serving the Austin market, has worked in the Austin area for 30 years. He said the Austin market died in the early 1990s, came back very strong in 1997 and 1998 and has picked up steam once again in the past two to three years. He attributes the strong growth to an influx of high-tech industries from California and suppliers to Dell, Round Rock, Texas.

Besides Dell, other large employers in the greater Austin area include Samsung, AMD, the state of Texas and the University of Texas system. The Austin market is so strong that Miller of Burrus & Matthews says his company is considering adding an outside sales rep there because it’s is convinced the city will continue to see strong growth.

Allen Ray, president of Allen Ray & Associates, Arlington, Texas, said Austin’s residential market is “red hot.” Ray has talked with several people in the past few months who are moving to Austin from California. They are building houses in Austin and are encountering long lead times before their houses are finished. “When I say huge, not 90 days, but 120, 180 days,” said Ray. The long lead times are due to the high demand for houses in the market, he said.

Dan McCoy, a principal of Bell & McCoy, an independent manufacturers’ rep based in Carrollton, Texas, says the Austin housing market is hot in all segments of the market — single-family, multi-family and luxury condo. He predicts the market will be strong for at least the next four to five years.

Scott Schieffer, president, Hill Country Electric Supply, Austin, has worked in the Austin market for 37 years. He was Rexel’s southern division president before opening Hill Country Electric Supply’s first store, which was in Austin, along with other former Summers Electric (an early Rexel acquisition) employees. The company now has three locations in the Austin-San Antonio corridor.

The single-family and multi-family residential market is strong, Schieffer said. Hill Country Electric Supply is doing a lot of work just south of downtown Austin on the other side of the Colorado River, where high-rise loft construction is booming. Many young people want to move into these lofts.

Unlike San Antonio, where most of the growth is occurring to the north and northwest, Austin is growing in all four directions, much like Houston, he said.

Construction in Austin is following a historical construction pattern with residential home building coming first, followed by construction of local services, such as gas stations, stores, medical offices and other light retail and commercial construction.

“The support is coming in for it — big mall projects, strip malls, retail, commercial, office buildings. I don’t know the exact figure on occupancy for office vacancy, but it’s high. They’re going to need some more space, so that’s growing, too,” Schieffer said.

“The thing about Austin is at times we would have feast or famine,” he said. “It might just take off. If you looked at a graph, you’d see it shoot straight up like a ski slope, but then it could drop off. San Antonio is kind of neat because it has been steady growth and you can always count on it.”

Despite the peaks and valleys of the Austin economy, Schieffer is predicting that the market will stay strong for several more years.

Elliott Electric, Nacogdoches, Texas, has doubled the number of locations it has in the greater Austin area since August 2001 when Chris Petty, Elliott Electric’s Central Texas area manager, started covering the market.

Several high-end commercial shopping centers, including the Prime Mall in Round Rock, restaurants, banks and strip centers are being built in the Austin area. Hospitals are also expanding in the Austin area. A $105 million, 260,000-square-foot, 151-bed hospital is being built in the Williamson County suburb of Cedar Park, Texas. In addition, a $200 million construction project at Dell’s Children Hospital is underway, and the luxury condo market is also strong, with condos under construction downtown.

Petty believes Austin has always needed more roads. “It’s a very difficult city to get around because there is a lot of traffic on I-35. They’re adding toll roads now, three or four roads that will alleviate a lot of the traffic and allow the city to grow even more.”

Samsung Electronics Co. is building a new semiconductor factory in Austin and hiring about 900 workers to staff it. The new factory, which will process silicon wafers 300 millimeters (roughly 12 inches) in diameter, is expected to be about three times the size of the company’s existing factory in northeast Austin. The new fabrication plant will be the first new chip factory in Central Texas in a decade, according to a June 29 article appearing in the Austin American Statesman.