How Austin keeps its cool with real estate investors

Austin is more than the Live Music Capital of the World.

The Texas capitol has become a preferred place to live and work, experts say. For these reasons, among others, it has earned a top place in the heart of some savvy real estate investors. In fact, the outlook for Austin’s metropolitan area is so good that commercial real estate expert Cadre includes it in the “Cadre 15,” their top U.S. real estate markets with the strongest potential for risk-adjusted returns [1].

Nick DiNunzio, Acquisitions Analyst at Cadre, considers Austin a solid market for purchasing rental and commercial properties “We see abundant opportunities for commercial real estate investors in Austin,” DiNunzio says. Prime selling points for investors: favorable demographics and trends in the local real estate market.

“Population growth in Austin is one of the best in the country,” DiNunzio says. The city’s population grew approximately 22% in the decade through April 2020, according to data from the U.S. Census Bureau [2]. That’s approximately three times the rate of growth of the rest of the country, which increased 7.4% over the same period, according to Census Bureau figures [3].

Big companies, with solid reputations, continue to move to the city, spurring further population growth. These moves help foster sustained job creation and, in turn, an increase in demand for residential and commercial real estate. Companies moving operations there include Google, Amazon, Space-X, Apple, Facebook, Canva, and Oracle [4].

The influx of new corporate campuses has helped keep local unemployment significantly below the national rate. In October, Austin’s jobless rate was lower than the U.S. as a whole: 3.4% [5] compared to 4.6% across the US [6], according to data from the U.S. Bureau of Labor Statistics.

Despite the job and population increases, Austin’s cost of living compares favorably to other major cities. For instance, it is reportedly 21% cheaper to live in Austin than Los Angeles, according to the Expatistan website, which tracks the data [7]. “Austin offers a lower cost of living than you would ordinarily pay in a city with such great employment opportunities,” DiNunzio says.

Part of the reason that it remains less expensive is the fact that Texas has no state income tax. Geography also works to Austin’s advantage. The city is also able to sprawl in ways other cities, such as New York and San Francisco, which are bound by their landscape, cannot.

But data only goes so far toward a robust real estate market analysis, says David Vincent, Investment Products Specialist at Cadre. U.S. governmental statistics are all public, so anyone has access to them. If the investment analysts at Cadre relied solely on such information, they would likely have the same analytical results as their competitors.

Instead, Cadre sources and analyzes its own data, giving the firm an edge over other real estate investors. “We firmly believe that you need to perform your own data analysis to come to conclusions that other managers cannot,” according to Vincent.

To keep ahead of the competition, Cadre supplements public information with proprietary data, including historic details on individual real estate transactions, rent levels, occupancy rates, and annual increases for commercial and residential rents. “We use this data to create our own price indices,” Vincent says.

Cadre’s analysis then goes even further with advanced computer science and data analytics. They  compare markets and forecast future prices. Those forecasts are reviewed regularly for accuracy, and adjusted when necessary.

That extra knowledge about future performance can give Cadre an advantage when bidding on properties, Vincent says. For instance, if the company sees growth at 4% when other investors think 3% is more realistic, then Cadre may be willing to pay more for the real estate.

“It’s difficult to pull away from the herd if we’re all using the same data and have the same opinion on markets as everyone else,” Vincent says. “That’s why we do the work ourselves.”