Commercial Magazine

Spotlight: Texas

The Lone Star State must tackle the challenges of population growth.

By Neil Pierson

When businessmen Herb Kelleher and Rollin King met over drinks at a San Antonio hotel in 1966, they likely didn’t understand the significance of the moment. King, a pilot and entrepreneur, began complaining about the costly airfares for the short flights between Dallas, Houston and San Antonio. As the legend goes, King drew a triangle on a cocktail napkin to illustrate the cities’ proximity (a detail that didn’t actually happen).

Com Spotlight 11-21 Demo Chart

Two things happened after that. King and Kelleher went on to co-found Southwest Airlines, which today employs some 56,000 people and is valued at $36 billion. And the concept of the “Texas Triangle,” one of the statistically recognized U.S. megaregions with a population of 18 million, was born.

According to a report from the Kinder Institute of Urban Research at Rice University, the 35 counties that comprise the Texas Triangle produce three-quarters of the state’s gross domestic product. The region is home to about 10% of all Fortune 500 companies. But the Triangle also epitomizes the challenges that face Texas as a whole — coping with a rapidly growing population through investments in education, infrastructure, transportation and affordable housing.

This past winter, a severe storm paralyzed the Lone Star State and its energy grid, leaving millions of homes and businesses without power for several days. Water systems and cellular networks also failed. Leaders of the state’s independent electricity operator were accused of failing to properly prepare for the storm. More than 50 people died as a result, leading to a raft of legislative proposals that address disaster mitigation.

The Texas Department of Transportation produces an annual list of the state’s most- congested roadways. The vast majority of these chokepoints are in the Triangle. Statewide, the number of registered vehicles has jumped 172% in the past four decades while highway capacity has grown by only 19%. Texas has more than 70 public transit districts that served 270 million-plus trips in fiscal year 2019. But transit usage since 2015 had fallen by as much as 22% in rural areas while operating expenses had risen by nearly 40% in the state’s largest cities.

An August 2021 report from ApartmentData.com noted that the major multifamily-housing markets in Texas have rebounded well from the depths of the COVID-19 pandemic. Annualized rent-price growth at this time reached double digits in Austin, Dallas-Fort Worth, Houston and San Antonio. Austin topped this list with 20.9% price growth, a surge tied to the fact that it was the state’s only metro area to recover all of its pandemic-induced job losses.

According to a second-quarter 2021 report from the Texas Real Estate Research Center at Texas A&M University, economic conditions are sunny for the state’s major commercial real estate markets. Oil prices were increasing and Texas added 2,300 energy-related jobs during the quarter. The transportation, warehousing and utilities sectors surpassed pre-pandemic employment levels by 1.2% as of Q2 2021, leading to industrial-property occupancy rates above 90% in Austin, Dallas-Fort Worth and San Antonio.

Com Spotlight 11-21 Office Chart

At the midpoint of 2021, Cushman & Wakefield reported that Houston had the third-highest office-vacancy rate among all U.S. metros, trailing only two much-smaller markets in the Northeast. Houston’s vacancy rate of 25.4% at this time was 820 basis points higher than the U.S. average and had swelled by 440 basis points since third-quarter 2019.

Cushman & Wakefield asserted that vacancies would decrease in the near future due to a lack of new construction. In the first six months of this year, there were no new office completions in the entire Houston metro area. Nine projects totaling 2.7 million square feet were underway as of second-quarter 2021, with more than half of this space set to be delivered by year-end 2021.

According to commentary from NAI Partners, Houston’s economy is showing signs of life as the metro area added more than 50,000 jobs in first-half 2021. But the office market will continue to struggle until the oil and gas industry stabilizes, and this sector was still shedding jobs at the midpoint of the year, NAI Partners noted.

Focus: Technology

The Lone Star State’s major cities have become magnets for tech startups and established companies searching for new homes. A prime example is Hewlett Packard Enterprise Corp., which announced plans last year to relocate its headquarters from Silicon Valley to suburban Houston. The company’s new 439,000-square-foot facility is set to open in 2022 and will be Houston’s eighth-largest employer with some 3,000 jobs.

In the state capital of Austin, more than one in six jobs are tied to the tech industry — nearly twice the national average. Austin’s “Silicon Hills” are home to numerous big-name companies spanning the spectrum of hardware, software, semiconductors, artificial intelligence, and research and development.

Dallas-Fort Worth added nearly 4,500 tech jobs in 2020 and was projected to double that number in 2021, according to the Computing Technology Industry Association. San Antonio is a smaller tech hub that is growing quickly. The Port San Antonio innovation center — a $60 million project that will include a 3,000-seat arena for tech-based professional development — is scheduled for completion in early 2022.

What the locals say

“The diversity of the industry here (in Dallas-Fort Worth) is why people are investing here more so than in Houston, especially on the institutional side. A lot of the people that we work with, they’ll be syndicators. They might buy anything from $1 million up to $30 million or $40 million with their own capital, or raise additional LP (limited partner) money. But the institutional investors were afraid of Houston for a long time. They were like, ‘All right, where can we be part of the Texas story?’ They went to Dallas-Fort Worth and Austin.”

Com Spotlight 11-21 Local

James Eng

National director
Old Capital 

3 Cities to Watch

El Paso

Com Spotlight 11-21 City 1

This city of about 680,000 people lies on the Rio Grande River and borders Juarez, Mexico, to the north. About 80% of residents are Hispanic or Latino. El Paso added 8,100 jobs from July 2020 to July 2021, or 2.6% growth, although these gains were concentrated in two employment sectors: leisure and hospitality; and trade, transportation and utilities. The University of Texas at El Paso has about 25,000 students and contributes $1.4 billion per year to the regional economy.

Frisco

Com Spotlight 11-21 City 2

Twenty years ago, Frisco was a sleepy northern suburb of Dallas with 33,000 residents. Today, it boasts a population of more than 200,000. The city was considered only 75% developed at the start of 2021 and has a median resident age of 36, younger than the U.S. as a whole. Self-branded as “Sports City USA,” Frisco has a sizable presence in the digital-gaming and sports-marketing worlds, and it is home to Major League Soccer’s FC Dallas and the National Soccer Hall of Fame.

San Antonio

Com Spotlight 11-21 City 3

San Antonio has experienced double-digit growth over the past decade and now has about 1.5 million residents. This past spring, municipal leaders announced a five-year, $38 million fundraising goal for economic development purposes, with a long-term plan of creating 140,000 new jobs and generating an additional $55 billion for the regional economy. In Q2 2021, tenants absorbed 1.1 million square feet of industrial real estate in San Antonio, the most for any quarter since 2013, CBRE reported.

Sources: ApartmentData.com; Austin Chamber; CBRE; Computing Technology Industry Association; Cushman & Wakefield; Federal Reserve Bank of Dallas; Fortune; Frisco Economic Development Corp.; Kinder Institute for Urban Research; MarketWatch; NAI Partners; San Antonio Business Journal; San Antonio Express-News; Silicon Maps; Texas Comptroller of Public Accounts; Texas Department of Transportation; Texas Real Estate Research Center; The Texas Tribune; University of Texas at El Paso

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