Hot Markets: Austin’s Relocation Boom

Private: Connor Greissing May 20 6 min read

By Connor Greissing, Managing Director & Partner

There’s a sense of excitement across the US. We’re ready to get back to work, and we don’t mean from home or the office, but rather from which state and which city—it matters. What factors attract businesses to expand or even relocate to a new state? We are looking at the hottest markets across the U.S. and the drivers behind their boom. We reviewed the Carolinas in our last article, let’s now turn our attention to the Live Music Capital of the World and the Capital of Texas, the City of Austin.

Austin aka Silicon Hills is booming and it’s more than a trend

Because of its appeal as a destination for migrating talent, metro Austin’s population grew by 32.4% between 2010-2019 according to figures from Austin Chamber compared with growth of 16.9% for Texas overall and just 6.9% for the U.S as a whole. More companies are relocating to Austin than anywhere else in Texas. And yes, a lot of them are coming from California. Population growth rates for Austin are projected to increase by 27% over the next 10 years, equating to an additional 621,000 people between 2020 and 2030. 

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Figure 1: Company expansions and relocations in Austin since 2010 (Source Austin Chamber)

Between Jan and March 2021, 51 companies relocated to or launched new facilities in the Austin area, creating 9,396 jobs according to Austin Chamber. Since 2010, 94 company headquarters relocated to Texas from California, and 28 of those settled in Austin. For details see the 2016-2021 relocations and expansions log. 

The movers and shakers

Apple, Samsung, Tesla, and Oracle are all making massive investments in Austin. The question for other innovation and tech companies is when? not if, they will follow suit. News that tech companies are leaving California for places where it is more cost-effective to do business, where the cost of living is lower and the sun still shines, is hardly new, but COVID-19 further intensified that trend. Austin has been called Silicon Hills, a moniker it is proud of, but what exactly is driving business and population growth into the city?

During the pandemic, when everywhere else seemed to be contracting, 154 companies announced plans to relocate or expand in Austin. “2020 proved to be the best year for attracting new jobs and new businesses to Austin,” said Laura Huffman, president, and CEO of the Austin Chamber.

One of the biggest companies to relocate to Austin was Tesla. Construction has started on the Gigafactory which will be the size of 138 football fields. Tesla expects to bring 5,000 jobs to Austin over the next few years. The company selected Austin for its $1 billion Gigafactory in July 2020. Elon Musk’s SpaceX also plans to build a new Starlink equipment factory in Austin, as revealed in a company job posting and recently reported by CNBC. 

Apple is building its second Austin campus. The 3-million-square-foot complex which costs around $1 billion is expected to employ 5,000 people, with the capacity to grow to 15,000 if required.

Samsung is reported to be negotiating a deal to build a $17 billion chip factory, creating 1,800 jobs on land it owns close to its existing northeast Austin plant. You can read more about the deal here.

The database software giant, Oracle, with a market value of more than $190 billion, is yet another massive company shifting its headquarters to Austin from the Golden State.

Of course, these are some of the most prolific companies in the world. Moves like theirs create excitement and headlines and often prompt others to follow.

Business-friendly – but how?

Many refer to Texas as having a business-friendly climate, but what does that mean? Strong economic developmentincentives are offered and have become an important factor when there’s competition to attract inward investment. Austin is competing against other cities and internationally, so competing with incentives, to create a business-friendly climate, does help to secure investment in the city, which brings more jobs, people, and direct and indirect economic opportunities. 

KVUE ABC reported that Austin currently has nine active incentive agreements totaling more than $112 million and the Travis county has eight active incentive agreements:

  • Samsung
  • Domain/Simon Properties
  • Fotowatio Renewable Ventures Solar Farm
  • East Blackland Solar Project
  • Apple
  • HID Global
  • Charles Schwab
  • Tesla

One of the biggest of Travis County’s incentive agreements is Tesla, which could total $60 million in property tax rebates. Apple will also receive $8.6 million in property tax rebates from the City of Austin.

According to publicly available state papers (p59), Samsung, who have been considering Arizona and Korea as alternative locations, could receive 100% property tax rebates of $805 million, over 20 years in exchange for creating 1,800 jobs, if they locate in Austin.

In short, lower taxes mean higher profits. Austin is making full use of these incentives along with the other benefits of locating in the Texas Hill Country to attract the biggest names in tech, manufacturing, and innovation. There are many factors to analyze from the cost of doing business, access to skilled labor, transport, and high quality of life.

The state of Texas does not collect personal income tax—an attractive environment for transferring employees. According to Austin Chamber State and local taxes in Texas are low relative to income, amounting to $88 per $1,000 of personal income, compared to the national average of $99 per $1,000.

So, we have established that Texas has a business-friendly climate, but with more people and companies relocating to Austin than any other part of Texas, what makes Austin so magnetizing?

What’s so great about Austin?

Austin is diverse, it is home to startups and entrepreneurs, companies in growth mode, and tech giants. Many celebrities including Matthew McConaughey, Sandra Bullock, and Willie Nelson, choose the city over Hollywood. Most recently, the innovation goliath and billionaire, Elon Musk has also chosen to call Austin home. 

The decision-makers of companies relocating or expanding into Austin know that they have access to an existing skilled labor force. Plus, whether recruiting nationally or asking their current talent to relocate with them—thanks to the lower cost of living, Austin is an easy sell. While the cost of living isn’t likely a factor for celebrities or CEO’s, the spiraling cost of living in San Francisco and New York are influential, it is worth noting CNN’s cost of the living calculator shows someone making $150K in San Francisco could make half that and still have a comparable lifestyle in Austin. Although the cost of living is an attractive factor, house prices in Austin, similar to the rest of the country—but perhaps more exacerbated by Austin’s surging population growth—are increasing significantly. Zillow reports a rise of 21.1% between March 2020 and April 2021, with a typical home value at $526,142. This value includes the middle price tier of homes. Rising prices across the U.S indicate a robust demand, despite or perhaps because of the COVID-19 pandemic.

A lower cost of living and access to good jobs aren’t the only factors. Austin is known for being home to a creative, innovative, friendly, and diverse mix of people. People are drawn to the city for its outdoor spaces and cultural vibe. Named the Live Music Capital of the World, Austin has gifted local bands and unique venues like the Moody Theater, Stubbs Waller Creak Amphitheater and the Continental Club that draw in big talent. Home to Austin City Limits falls music event with major headliners and South by Southwest film, media, and music festivals in March. Austin also hosts the Formula One Grand Prix at the Circuit of The Americas, and the city has recently welcomed their very own major league soccer team, Austin FC.

Foodies can enjoy Austin’s vibrant restaurant scene and for those who enjoy nightlife, the city offers plenty of craft breweries and the iconic Sixth Street and Rainey entertainment districts.

There are plenty of outdoor options too, from hiking in the hill country, cycling, running, fishing, and kayaking options, and more than 250 parks. The tree-lined 10-mile trail around Lady Bird Lake along the Colorado River is one of Austin’s most popular options (1.5 million visitors annually).

Austin is the new Austin

As an office market, Austin has experienced a significant boom from inbound corporate relocations from San Francisco, Chicago and New York. In short order, we’ve seen the deluge of sublease space that came online during the Pandemic quickly be absorbed by this inbound tenant demand. With the 25+ deals (needing more than 25,000 square) we are now tracking, we have conviction the Austin office market will return to pre-pandemic rent and supply levels by Q1 2022, if not earlier.

As an office market, Austin has experienced a significant boom from inbound corporate relocations from San Francisco, Chicago and New York. In short order, we’ve seen the deluge of sublease space that came online during the Pandemic quickly be absorbed by this inbound tenant demand. With the 25+ deals (needing more than 25,000 square) we are now tracking, we have conviction the Austin office market will return to pre-pandemic rent and supply levels by Q1 2022, if not earlier. 

In 2020, amid the pandemic, Austin topped LinkedIn’s list of cities that gained the most newcomers. Austin was also ranked #3 Best City to live 2020 by U.S News after only Boulder and Denver. Based on the quality of life, the job market, lack of personal income tax, and the cost of living as well as people’s desire to live there.

With all of these benefits, people and companies are voting with their feet. Austin is proven as an optimal location. It’s more than a trend, Austin is here to stay—look no further, Austin is the new Austin.

Connor Greissing serves as Managing Director & Partner for Stream Austin’s Office group. Connor’s expertise focuses on advising clients on office relocations, lease restructuring, and financial engineering for lease and acquisition transactions.

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