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November 18, 2016

Volume 38, Number 34

The Texas Legislature, by most counts, will be working with a tight budget when it convenes in Austin this January.  Realizing this, the UTSystem is still unashamedly boldin its future plans.  Its pitch for a new 2year budget reflects this approach.  In fact, Chancellor Bill McRaven is leveraging the Systems size, diversity and quality to make a case for funding.

McRaven has already outlined his aggressive budget push in person to legislative leaders and staff in Governor Greg Abbott’s office.  Next up will be public budget hearings before the appropriate committees during the 140-day legislative session that begins January 10, 2017.  Without diving into the dollars, here is a small sampling of McRaven’s arguments:

We are by far the largest university system in Texas by any measure, whether budget, annual research expenditures, number of students or number of graduates.  We have eight academic and six healthrelated institutions, each different in size and mission, in who they serve, and in what they offer.  UTAustin is one of only three Texas members of the elite Association of American Universities and just last month was recognized as the top Texas university globally.”

Of course, McRaven ticked off many more examples as he defended the UTSystem budget, saying “size, diversity and quality directly correlate to the size of the UTSystem Administration … we do more, and it takes more staff, than what other Texas systems may do we do a lotwe have the largest and boldest agenda.”

The bottom line:  he is seeking increased state funding for the two years beginning almost a year from now, in 2017.

The UTSystem works hand-in-glove with UTAustin.  And, of course, the UTSystem Board of Regents is the governing body that sets policy for the System and its member institutions.  But, remember, UTAustin has its own budget that must also be approved, and funded, by the Legislature.  All of this is complicated number-crunching vital to Austin’s economy – as well as the state’s.

As we mentioned at the top, legislative leaders will be looking at revenue projections guided somewhat by the reduced tax income from a struggling oil and gas business.  And in a pay-asyougo state, it cant do as the federal government does and exceed anticipated revenues. Read more →

November 11, 2016

Volume 38, Number 33

In the face of harsh and aggressive criticism, Austin voters marched to the polls Tuesday and overwhelmingly approved the largest bond package in the citys history.  With a tax increase attached, yet.  Proposition 1 was a hodgepodge of transportation and mobility improvementsSo, what can conclusions can be drawn?

First of all, credit for the decisive 59.1% – 40.9% victory should go to Mayor Steve Adler, who pushed, cajoled and persuaded his divided City Council to agree to put the $720 million Proposition on the ballot.  That was a tough job at the outset.  Then the mayor lined up major backers who would support the initiative, and importantly, come up with the big bucks to wage the campaign that was ultimately impressively successful.

The proposition hit at the very core of citizen’s concerns – crowded roadways, congestion and the frustration of every Austinite, whose hands have been on a steering wheel, has felt at some point in time.  And it went beyond that.  Those who fervently believe bicycle mobility and pedestrian access are also important were guaranteed a slice of the financial pie.

The opponents raised legitimate concerns.  They proposed:  1) instead of one humongous proposition, break it up so a voter could say yes/no on bikes, roadways, trails, etc., and 2) dont raise taxes.  Also, they were concerned many of the Prop 1 items were for “studies,” so additional dollars will be needed later to actually make improvements on key roadways etc.  Opposition claims included words such as “dishonest” and “deceptive.”

Supporters of the Proposition Clarke Heidrick and Carl Richie said “the proposed improvements are designed to relieve congestion and increase flow on major corridors, build pedestrian infrastructure and create safe routes to school, and improve some of the worst intersections and roadways in western Austin.”

The Proposition wording listed names of major roadways all around Austin.  But, while it was not hidden, many of the roadways are simply the subject of studies” as a result of passage of Proposition 1.  Get ready.  It’s gonna cost a lot more than was approved this week to build the proposed solutions.  As Heidrick and Richie put it:  “We know that more is needed perhaps many billions of dollars more.”  Recognizing passage of the Proposition is a start, they said “if we do nothing, delays will triple.” Read more →

October 14, 2016

Volume 38, Number 29

Heres how we are growing.  Nearly 75% of the 2015 and yeartodate 2016 corporate relocations and expansions in the Austin area involve technology companies.  This clearly demonstrates the evolution of this remarkable metro.  As recently as 1990, government payrolls accounted for 29% of our total.  In 2015, it had shrunk to 18% — while the metro has grown by leaps and bounds.  Now, heres a bit more insight into one of the nations most amazing economic stories.

Over time, the Austin area – once dominated by government and education jobs – has evolved since 1983 (which we mark as the beginning of the tech evolution) into a diversified $115 billion economy with strong ties to the tech sector.  What is it about Austin?  The complete answer is complicated, but here is how one of the world’s leading commercial real estate advisory firms, Newmark Grubb Knight Frank (NGKF), describes it in one sentence:

This dynamic city offers an enterprisefriendly environment, entrepreneurial focus and a unique culture that combines tradition with creative possibility and innovation.”  Broad, and accurate.  But what stats do you have, NGKF, to support this conclusion?

“Today, with patents, venture capital and leading edge ideas driving innovation, 5,485 hightech employers representing nearly 132,300 jobs have put down roots in Austin,” NGKF said.  “These companies range from tech titans, including Apple, Google, Facebook, Oracle, Cisco Systems, Dell and Hewlett Packard to seed-stage and start-up ventures.”

NGKF referenced venture capital (that we reported on in recent editions).  Here’s what they had to say:  “Since 2005, Austin has received nearly half of all venture capital dollars invested in the state of Texas, eclipsing the much larger Dallas and Houston areas.”

This information was made available to NGKFs 14,100 professionals in more than 400 offices on six continents.  Its clients include prominent multinational corporations and institutional investors across the globe, as well as, occupiers, owners and developers of real estate on a local, regional and national level.  Check out the next item, where will share more of their report, and point out a little personal quibble about one of their statements. Read more →

September 2, 2016

Volume 38, Number 23

Finding a speedier way through downtown Austin seems to be moving at a snails pace.  But its moving nonetheless.  In fact, as we speak, a big push is underway behind a specific option for upgrading IH35.  The Texas Department of Transportation (TxDOT) is considering two very different plans that would reduce congestion.  And, one option has emerged as preferred by a large chunk of landlords, landowners and downtown merchants.  Heres the lowdown and we do mean low.”

TxDOT is conducting its environmental study of the downtown IH35 Corridor and has narrowed its choices to a lowered option or a raised design plan.  Currently it’s in the “comments from the public” stage, and a major move is underway on behalf of the lowered option.  Here’s a brief examination of the two plans between 15th and Cesar Chavez.

Raised Option.  The existing highway would be modified by adding 2 lanes in each direction, utilizing current shoulders, elevating current depressed southbound lanes to be built alongside the already raised highway.

Lowered Option.  The portion between 15th and Cesar Chavez would be lowered and two lanes would be added in each direction.  Infrastructure would be created to accommodate a cap over sections of the lowered lanes.  A park is envisioned on top of the cap.

Those pushing for the lowered option cite a number of arguments, including setting up Express Lanes that would be toll-free for buses.  This, they argue, would encourage the use of public transit and help remove vehicles from busy roadways.  And a lowered, covered roadway would reduce noise pollution in the area.

All this is happening as Thursday, 9.1.16, TxDOT named its 100 most congested roads in Texas.  And you guessed it, IH35 between US290 on the north all the way to Ben White Blvd on the south was the 2nd worst segment in Texas.

We needn’t remind old-timers that IH35 used to be called “The Interregional” 50 years ago, and even when it became of a part of the ambitious Mexico-to-Canada IH35 system, drivers still had to stop in downtown frequently to let railroad trains cross the expressway.  So, current planning is a vast improvement. Read more →

July 22, 2016

Volume 38, Number 17

An important, broadbased measure of Austins economy is the growth of your personal income.  It becomes especially important when you compare Austin with other US locations because the national economy is so intertwined.  Its also because companies and individuals are changing locations more frequently.  So, how did you do personally, and how did Austin do nationally, in the figures released just this month?

The answer to the question is quite well, thank you.  In fact according to the USBureau of Economic Analysis (BEA), Austins real growth in personal income in 2014 ranks it 3rd among the 50 largest US metros.  Pretty impressive.  This growth covers the most recent reporting period from 2008-2014.  And, per capita income growth in that period was 5.0%.  Only a dozen large metros have seen larger per capita growth, according to the BEA.  So, you and your Austin area neighbors have done reasonably well compared to others.

Analyzing this report, Austin Chamber VP/Research Beverly Kerr dug deeper to determine overall price levels in Austin are 1.0% lower than the US average and also lower than DallasFt. Worth and Houston.”  This is significant for two reasons.  First of all, it speaks to the continuing local debate about how affordability is impacting Austinites.

Secondly, and importantly, income must always be measured against cost of living.  After all, what good does it do to make a buncha bucks if you don’t have much left over after spending it on the essentials?  (Are you listening, San Francisco and Silicon Valley cities like San Jose?)

Kerr points to this quote from USCommerce Secretary Penny Pritzker:  “Americans looking to move or take a job anywhere in the country can compare inflation-adjusted incomes across states and metropolitan areas to better understand how their personal income may be affected by a job change or move.”  The same holds true for businesses considering relocation or establishing new plants.

Austins average prices are 1.0% lower than the US average.  The BEA data includes consumption goods and for services, with services broken out into rents and other.  Goods account for about 1/3 and services for about 2/3 of household expenditures (with rents accounting for 29.5% of that).  All in all, dynamic Austin compares well with other metros. Read more →

June 10, 2016

Volume 38, Number 11

Investor money continues to flow at a rapid rate into the Austin area.  One example:  Austin is #17 in the world the world! – for foreign commercial real estate investment, according to a SrVP with JLL, Capital Markets Group.  This is despite the fact that the percentage of return on such investments is lower than many would likeWhere does it go from here?

GlobeSt.Com reported recently that “Austin is perfect for foreign investors” noting the “Capital of the Lone Star State is ripe for investment as the city continues to experience a construction boom.”  But there is a problem with “cap rates” — a key part of the equation for commercial real estate investors.  Okay, for those not intimately involved with this type of investment, just what is a “cap rate?”

“Cap rate” is shorthand for Capitalization Rate.  Cap rate is the percentage of return from an investment when you divide the Net Operating Income (NOI) by the price paid for the property.  How about a simple example?  If an investor pays $1 million for a property and the NOI is $100,000, the cap rate is 10%.

According to the report, current cap rates in Austin have been compressed, causing concern among many investors.  But some feel this is about to change for the better.  “Most of the people in the investment community know it’s going to happen,” said Jeff Coddington, the SrVP of JLL, Capital Markets Group.  “The question is how much and when.  To some degree, it’s already priced into our underwriting deals now.”

It’s not just the cap rate that is concerning for investors when they look at Austin.  “Getting things through the regulatory environment here is difficult,” Coddington told GlobeSt.com.  “No deal is easy,” he added.  Yet in spite of these concerns, foreign investors are bullish on Austin.  And GlobeSt.com reported “foreign capital is coming in with allcash buyers.”

This is important not only for Austin’s commercial real estate sector.  It has a widespread economic impact.  Much of these dollars flow throughout the area – construction jobs are one example.  Successful commercial real estate enterprises can also be an inducement for job-creating companies who flock to these facilities – especially for the millennial generation that is responsible for redefining Austin office buildings.  Check out the next item. Read more →

May 13, 2016

Volume 38, Number 7

You probably know Austin is one of the most technology intensive metro economies in the USBut do you know how many tech employers are in Austin?  Employees?  How many tech firms are in manufacturing and how many are nonmanufacturing?  Average annual salaries for tech-sters?  How all this compares to other Austin jobs?  And how these numbers have been changing?  Weve got answers for you.

To start with a perspective:  the tech economic phenomenon in this state government/state university area is relatively recent.  The tech surge began when a tech research consortium, composed of the US’s leading technology businesses, picked Austin in 1983 as HQ for a high-stakes gamble to regain world tech dominance.  So, how far has Austin come in 33 years?

First of all, the big picture.  There are 5,485 high tech employers in the Austin metro.  And employed/self-employed workers in tech industries total nearly 132,300, or 13.3% of all jobs in the metro – and this represents an increase of 6.0% over the previous year.  These numbers, and the subsequent deeper dive into more detail that is coming up, were compiled by the Austin Chamber’s VP/Research Beverly Kerr.

Over the past five years, the number of firms has grown 33.1% in high tech industries, compared to 24.7% overall.  In Austin, among tech firms, 5.4% (297) are manufacturing and 94.6% (5,187) are nonmanufacturing.

Okay, step back a minute.  Look out the window.  Rub your eyes a bit, ’cause a whole buncha numbers can make your eyes glaze over.  But these tech numbers are important to understand what is happening to the Austin economy.  So, let’s keep going and talk about paychecks money that goes into the jeans of these techsters, money that they spend all over town.

High tech payrolls in 2015 totaled $13.3 billion or 23.3% of the Austin metros total payroll of $57.1 billion.  This is a huge number.  And tech payrolls have shown better gains than employment.  The gain for tech industries (7.4%) exceeds the gain for all industries (5.6%).

For all industries, the average annual salary in Austin is $54,678, while the average salary across all tech jobs is $100,625.  Impressive.  Bear with me, there’s more info in the next item. Read more →

February 19, 2016

Volume 37, Number 47

Early voting for the March 1st Texas Democratic and Republican Party primaries began this week.  Its equally important for both parties.  The huge block of Texas delegate votes will have a strong influence on the eventual presidential nominee of each party.  This is just as true for the Dems as it is for the GOPers, even though Texas is considered a solid Republicanvoting state.

Texas Dems will get a Dem-only ballot.  They will only decide between Hillary Clinton and Bernie Sanders.  They won’t get a chance to express their opinions on any GOP candidate.  Same with the Republicans.  Clinton and Sanders will not be on the GOP ballot.

The primaries are run by the political parties. A Dem vote carries just as much weight within their party, even though their total numbers may be fewer than their GOP neighbors.  The General Election in November is where the Texas Republican strength will manifest itself all up and down the ballot.  How pervasive is the GOP dominance in Texas?  Take a look.

In both the off-year of 2014 and this presidential year of 2016, nearly 40% of state House and Senate districts are guaranteed Republican because no Democrat filed to run in those districts.

There are 254 counties in Texas.  Two years ago, 86 counties had no Democratic candidate for any county office, while another 35 had just one candidate, according to former state GOP chair, Wayne Thorburn, writing in the Texas Tribune.  Now look at what has happened in just two years:

This year, there are no Democratic candidates for any county office in 117 counties and only one such candidate in another 41 counties.  This is more than half the counties in Texas, where Republicans are guaranteed to dominate in a wide array of local offices.  And, it doesn’t take into account other races that are contested, where Republicans are likely victors.

Obviously Austin and Travis County do not fit this mold.  The numbers cited above may come as a surprise to some who are not well acquainted with what is going on outside this area.  But, back to our original point — Texas is just as important to the Dems during the primaries as it is for the Repubs.  Its a whole other ballgame when November rolls around. Read more →

February 5, 2016

Volume 37, Number 44

Austins Mayor and City Council are facing their biggest challenge since the governing body expanded to tenmembersplusthemayor a little more than a year ago.  It doesnt involve budgeting, traffic gridlock, the airport, water and electric utilities or any of the other longstanding issues.  This involves ridesharing, the new concept sweeping the nation.  But where many cities are running smoothly down this new road, Austins City Council finds itself in a complicated mess.

The complications involving new ride-sharing companies Uber and Lyft and the existing taxicab companies have been rising in a crescendo mode for months.  The debate over the issues will peak next week (though they will not necessarily be fully resolved), when the Austin City Council takes yet-another-vote on the topic February 11th.  To prevent your eyes from glazing over, we will not try to re-cap all the twists and turns in this process.  Let’s simply analyze the reasons why this is such a challenging time for the Mayor and City Council.

Almost overnight, more than 25,000 qualified signatures were gathered to override the Councils actions to require fingerprinting of Uber and Lyft drivers, who are mostly private citizens trying to make a buck on a part-time basis.  This is rare; such a petition drive hasn’t occurred in years.  Depending upon how the Council reacts, an election would be set to overturn the ordinance.

There is even an effort to force a special election to recall a sitting member of the City Council who was out front in the effort to fingerprint drivers.  Once again, a recall effort is rare indeed, especially when you consider there is no charge of malfeasance against the councilmember – only they didn’t like the way she voted.  (Imagine if a recall election was pushed on every controversial vote taken by the Mayor or any councilmember.)

If any election is called, it would be just around the corner May 7th, a standard election date when other items would be on the ballot, such as local school board and other elections.

Mayor Steve Adler is scrambling to make lemonade out of lemons, such as pushing a compromise to provide a financial incentive for voluntary fingerprinting.  So, there will probably be developments daily until the February 11th Council meeting.  Stay tuned. Read more →

January 22, 2016

Volume 37, Number 42

Youve seen the acronyms AUS and ATX referring to Austin.  How about ASA?  For AustinSan Antonio.  We may be getting way out front on this, but there is continuing evidence that the two fastgrowing, verydifferent cities may be moving in that directionHey, it happened north of us as Dallas and Fort Worth morphed acronymically to DFW.  And both of those metros arguably benefitted, while keeping their separate identities.

It’ll be a long time before the Capitol City and the Alamo City become one large geographic entity.  But if you’re interested in the future of this area, this is one element that bears watching.  Little by little, the two distinctivelydifferent cities are become more and more interrelated.

One example is Austin’s bailiwick – tech companies.  A San Antonio commercial real estate exec told Bisnow the Alamo City is seeing some Austin tech companies growing their support staffing in San Antonio “where the occupancy cost is literally half what it is in downtown Austin, and talent is still available.”

Action is not only taking place in the two big cities.  The smaller cities in the corridor between the two are feeling it as well.  The tech giant Amazon has opened its second fulfillment center in San Marcos, where 855,000 square feet is under construction.  Earlier, just north of San Antonio, Amazon built a 1.2 million square foot center in Schertz.

While this newsletter has had a laser-like focus on Austin’s economy and growth since our founding 37 years ago, we’ve kept a watchful eye on San Antonio – comparing and contrasting these two cities that have been taking an economic back-seat to Dallas and Houston.  San Antonio is feeling its oats now.  It is quite healthy, but there is a very significant contrast:

San Antonio leaders are crowing about a new Frost Bank Tower that will be the first downtown office tower built in the Alamo City in 30 years?  Can you believe it?  Thirty years!  It seems like a downtown office tower is being announced in Austin every 30 minutes (okay, okay, so we exaggerate)!

Speaking of that, is Austin’s fast pace of construction creating a risk of overbuilding of office buildings?  Let’s examine that in the next item. Read more →