Austin Economic Update

William Mellor

February 7, 2018

TODAY’S AGENDA

o Texas Overview

o The Austin Economy

o Challenges to Overcome

o Austin Job Market

o Key Takeaways

2

TEXAS OVERVIEW

3

TEXAS OVERVIEW: AT-A-GLANCE

Population Growth

1.4%

Employment Growth

2.3%

Retail Growth5.9%

VC Funding10.4%

Number of Businesses

2.4%

Average Wage3.3%

Unemployment0.8%

Housing Starts8.2%

Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Austin Chamber of Commerce, Texas A&M Real Estate Center

4

TEXAS OVERVIEW: POPULATION

26.98

27.47

27.96

28.44

28.92

29.12

26

26

27

27

28

28

29

29

30

2014 2015 2016 2017 2018 2019

Mill

ion

sPopulation (millions)

(400,000)

(420,000)

5

TEXAS OVERVIEW: MIGRATION

Natural Growth:209,700

49%

2017 Net Population Growth: 399,300

Source: U.S. Census Bureau, Texas A&M Real Estate Center

Domestic Migration

79,20029%

International Migration:

110,40021%

6

TEXAS OVERVIEW: JOB GROWTH

(8,600)15,800

22,50022,900

28,600 29,400

34,700 36,200

46,700 50,700

INFORMATION

OTHER SERVICES

MANUFACTURING

FINANCIAL ACTIVITIES

TRADE, TRANSPORTATION, AND UTILITIES

MINING, LOGGING, AND CONSTRUCTION

GOVERNMENT

LEISURE AND HOSPITALITY

EDUCATION AND HEALTH SERVICES

PROFESSIONAL AND BUSINESSES SERVICES

Texas Job Growth by Sector, 2017

1.3%

2.5% 2.7% 2.7%3.1%

0%

1%

2%

3%

4%

Houston San

Antonio

El Paso Austin DFW

Austin vs. Other Major

MSAs, (Through Nov. 2017)

Source: Bureau of Labor Statistics, Dallas Fed

Total Nonfarm Employment

• 12,534,000

Nonfarm Change in Employment

• 278,900

7

TEXAS OVERVIEW: 2-YEAR FORECAST

800

16,500

11,500

24,000

23,000

26,600

37,000

44,500

60,000

58,000

-7,500

14,500

16,200

19,500

21,200

23,500

34,400

42,000

53,000

54,000

-20,000 -10,000 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000

Information

Other Services

Manufacturing

Construction

Financial Activities

Trade, Trans, and Utilities

Government

Leisure and Hospitality

Professional/Bus Services

Education and Health

Jobs Gained/Lost

2018 2019

Total Jobs

2018: 270,800 (2.2%)

2019: 301,900 (2.4%)

8

THE AUSTIN ECONOMY

9

THE AUSTIN ECONOMY: AT-A-GLANCE

Population Growth

2.7%

Employment Growth

2.7%

Retail Growth4.4%

VC Funding-16.2%

Business Growth

4.5%

Average Wage1.7%

Unemployment0.5%

Housing Starts13.3%

Source: Bureau of Economic Analysis, Bureau of Labor Statistics

10

THE AUSTIN ECONOMY: POPULATION

1.94

2.01

2.07

2.12

2.18

2.22

2

2

2

2

2

2

2

2

2

2

2014 2015 2016 2017 2018 2019

Mill

ion

sPopulation (millions)

(56,000)

(55,000)

11

THE AUSTIN ECONOMY: HOUSING

Source: Texas A&M Real Estate Center

12

33,900Sales

$307,500Median Price

$1.1 Billion

Dollar Volume

7,300Total Listings

2.6 months

Monthly Inventory

Y/Y

3.7%

5.5%

9.5%

14.0%

.2 months

CHALLENGES TO OVERCOME

13

CHALLENGES: HOUSING AFFORDABILITY

0

2

4

6

8

10

12

14

Housing Starts Issued per 1,000 residents

0

5

10

15

20

25

Sales per 1,000 residents

• Housing starts shortage in last 10

years

• Should be building 14,700 homes

per year

• 2.4 times more housing sales than

housing starts in 2017

Source: Texas A&M Real Estate Center

14

CHALLENGES: HOUSING AFFORDABILITY

-1.1%-2.7%

4.2%

1.8%

6.0%

7.8%

7.1%

7.8%

4.7%

5.50%4.8%

2.7%2.4%

1.3%1.7%

2.8%

3.8%

0.3%

2.80%

1.70%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Average Wage Growth vs. Average Home Price Growth

Average Price Average Wage

15

CHALLENGES: RENT AFFORDABILITY

11%

13%

14%

12%9%

7%

9%

25%

Cost of Rent as a Share of Income

<15%

15-20%

20-25%

25-30%

30-35%

35-40%

40-50%

>50%

• Austin has relatively high housing

costs as a percentage of income,

similar to that of San Francisco

• Rule of thumb: 25% of income

• 25% of Austinites spend more than

50% of their income on housing

• 50% of Austinites do not meet this

threshold

28.929.2

29.529.9 30 30.1

30.9

282829293030313132

Raleigh Houston Seattle Denver Austin San

Francisco

Chicago

Rent as a Percentage of Income

Source: Census Bureau

16

CHALLENGES: TRAFFIC CONGESTION• Austin has 7th worst traffic in U.S.

“A 30 minute trip during light traffic takes 43 minutes during peak periods”

• BUT: • Low annual congestion cost

per commuter(US Rank: 20th)• Austin: lower fuel costs

and shorter actual commutes

24 2010

8 54 3

0

500

1,000

1,500

2,000

Honolulu Austin Riverside San Jose Seattle SF Bay Area L.A.

Annual Congestion Cost per Commuter

1.30

1.40

1.50

1.60

1.70

L.A. SF Bay Area Honolulu Riverside San Jose Seattle Austin

Highest Traffic in U.S. by Commuter Stress

Index (CSI)

Source: Texas A&M Transportation Institute

17

AUSTIN JOB MARKET

18

AUSTIN JOB MARKET: TOTAL GROWTH

38,90040,000

36,900

27,30025,700 26,300

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2014 2015 2016 2017 2018 2019

New Jobs Percent Growth

19

AUSTIN JOB MARKET: JOB SECTOR GROWTH

(500)

900

1,700

1,900

2,600

3,400

3,400

3,500

4,900

5,500

-1,000 0 1,000 2,000 3,000 4,000 5,000 6,000

Information

Financial Activities

Other Services

Manufacturing

Professional/Bus Services

Construction

Trade, Trans, and Utilities

Government

Leisure and Hospitality

Education and Health

2017 Job Growth by Sector

Source: Bureau of Labor Statistics

0

50,000

100,000

150,000

200,000

Information Other Services Manufacturing Financial

Activities

Mining,

Logging, and

Construction

Education and

Health

Services

Leisure and

Hospitality

Professional

and Businesses

Services

Trade,

Transportation,

and Utilities

Government

2017 Total Employment High Tech Jobs

2016Growth

Computer Manufacturing

-0.8%

Semiconductor

Manufacturing-6.0%

Technical Services 2.3%

20

Total Employment

Change

YTD 2017: 27,300

AUSTIN JOB MARKET: TECH SECTOR

Source: Bureau of Labor Statistics

21

Tech Facts

113,200Tech Employment

0.9%Tech Industry Employment

Growth (’15-’16)

5,000

Tech Businesses

22.6 employees

Average Tech Firm Size

12.1%

Tech Industry Share of Total Workforce

113,200 114,500155,600

310,900

Austin Denver Atlanta San Jose

Tech Employment

5,0006,300

9,300

11,700

Austin San Jose Denver Atlanta

Tech Businesses

Share of Total MSA Output

20.7% 50.7% 11.9% 10.5%

Austin DenverSan Jose Atlanta

AUSTIN JOB MARKET: HEALTHCARE SECTOR

22

0

10,000

20,000

30,000

40,000

50,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

HealthCare Employment

Ambulatory/Outpatient Services

Social Assistance

Nursing & Care Facilities

Hospitals

Or 101,100 out of 1,016,800people employed in Austin, TX work in the healthcare industry.

1 OUT OF 10 10%

AUSTIN JOB MARKET: THE FESTIVAL ECONOMY

COTA SXSW ACL FEST

Annual

Economic

Impact

$1 billion $320 million $220 million

Attendance 486,200 140,000 194,000

Years Active 6 30 15

Source: AngelouEconomics, Greyhill Advisors

23

AUSTIN JOB MARKET: 2-YEAR FORECAST

0

1,000

1,200

1,200

1,800

3,400

3,400

3,900

5,000

5,400

-100

1,000

1,100

1,200

1,800

3,300

3,400

3,800

4,900

5,300

-1,000 0 1,000 2,000 3,000 4,000 5,000 6,000

Information

Financial Activities

Trade, Trans, and Utilities

Manufacturing

Other Services

Professional/Bus Services

Government

Construction

Leisure and Hospitality

Education and Health

Jobs Gained/Lost

2018 2019

Total Jobs

2017: 25,700 (2.5%)

2018: 26,300 (2.5%)

24

KEY TAKEAWAYS

25

KEY TAKE AWAYS

• The economy is cooling off – this is actually good!

• The Austin area is poised to be one of the fastest growing metros in the US until 2040

• The job sectors with the best growth prospects are:

• Education & Healthcare

• Construction

• Professional & Business Services

• Real Estate

• The job sectors with the least growth prospects are:

• Manufacturing

• Finance

• Information

26

Questions?

If you would like a copy of this presentation, please e-mail me at:

wmellor@angeloueconomics.com

AngelouEconomics has been an industry leader in site location, strategic planning, and economic research for more than 20 years!

angeloueconomics.comTwitter: @angeloueconPhone: 512-225-9325

27

REAL ESTATE SECTOR

28

REAL ESTATE SECTOR: OFFICE

Source: CoStar

29

Existing Inventory

99.5 million ft2

Total Inventory

4.5 million ft2

Total Under Construction

8.1%

Vacancy

764,900 ft2

Net Absorption

Y/Y

$31.13

$33.67

$31.00

$34.00

2016 1Q

2016 2Q

2016 3Q

2016 4Q

2017 1Q

2017 Q2

2017 Q3

2017 Q4

RENTAL RATES$/SQ. FT.

REAL ESTATE SECTOR: RETAIL

Source: CoStar

30

Existing Inventory

109.7 million ft2

Total Inventory

978,500 ft2

Total Under Construction

3.8%

Vacancy

256,600 ft2

Net Absorption

Y/Y

$18.98

$21.86

$18.50

$22.50

2016 1Q

2016 2Q

2016 3Q

2016 4Q

2017 1Q

2017 Q2

2017 Q3

2017 Q4

RENTAL RATES$/SQ. FT.

REAL ESTATE SECTOR: INDUSTRIAL

Source: CoStar

31

Existing Inventory

101.7 million ft2

Total Inventory

1.8 million ft2

Total Under Construction

7.1%

Vacancy

587,100 ft2

Net Absorption

Y/Y

$8.84

$10.47

$8.50

$10.50

2016 Q1

2016 Q2

2016 Q3

2016 Q4

2017 Q1

2017 Q2

2017 Q3

RENTAL RATES$/SQ. FT.