Losing some luster

Austin drops dramatically in ranking of top markets for real estate investors

Austin drops in ranking of top markets for real estate investors

Austin aerial skyline with downtown
Investors are looking for less "crowded" markets than Austin, says a new report. Photo by dszc/Getty Images

The investment market for offices and other commercial real estate in the U.S. is cooling off in Austin but heating up in Dallas-Fort Worth. That’s the upshot of a new forecast from professional services firm PwC and the nonprofit Urban Land Institute.

In the forecast, released October 10, Austin saw a one-year drop from No. 2 to No. 6 for investment prospects in commercial real estate in 2019, including office, retail, and industrial properties.

Dallas-Fort Worth took the No. 1 spot, up from No. 5 in the 2018 forecast. Rounding out the top five is Brooklyn, New York; Raleigh-Durham, North Carolina; Orlando, Florida; and Nashville. 

So, why is Austin on the decline while DFW is on the upswing?

R. Byron Carlock Jr., U.S. real estate leader at PwC and co-publisher of the report, attributes Austin’s descent to a higher cost of doing business and a higher cost of living, particularly in comparison with DFW. “But with its young, educated workforce and a population growth rate projected to be over three times the national average, Austin remains of great interest to investors,” Carlock tell CultureMap.

As Austin fell four spots, DFW jumped four spots. Carlock cites DFW’s workforce, diverse employment base, favorable tax situation, and robust startup environment for the region’s climb to No. 1. 

“We are late in the economic recovery cycle, and while this may continue for a while, real estate investors are focusing on those markets that are best positioned to grow over the long-term,” Carlock says. “DFW is expected to grow more than two times faster than the overall U.S. population, meaning people want to live and work in the DFW area, and employers are taking notice.”

In turn, those employers need space for their employees, giving a boost to the DFW office market. As such, a recent report from commercial real estate platform CommercialCafé ranks DFW as the third hottest market for office construction, with Austin landing at No. 7.

Elsewhere in the Emerging Trends in Real Estate report from PwC and the Urban Land Institute, San Antonio comes in a No. 20 for investment prospects in commercial real estate in 2019, down from No. 18 in the 2018 outlook.

Carlock says San Antonio slipped in the ranking thanks to a “herd mentality” among commercial real estate investors. The same holds true for Austin, he says. “The drop in the rankings is more a reflection on investors looking for less ‘crowded’ opportunities," says Carlock. "This does not suggest that there are looming problems in those markets.” 

While Austin may be suffering from that “herd mentality,” the report puts it at No. 3 for homebuilding prospects in 2019. Dallas-Fort Worth appears at No. 6, Houston at No. 19, and San Antonio at No. 28 in the homebuilding category.