Trends in Austin Area Commercial Development

On  Wednesday I attended New Approaches for a Changing Landscape, a seminar on area commercial development presented by Central Texas Association of Realtors and Silver Hill Financial LLC. 

The participants were:

Moderator:  Doug Dwyer, Senior VP Transwestern Austin

Engineering/Consultant:  Chuck McLendon, Raba Kistner Consultants

Residential Lot Development:  Pete Dwyer, Dwyer Realty Companies

Office Development:  Lance Sallis, Trammell Crow

Apartment Development:  John McKinnerney, Simmons Vedder and Company

Retail Development:  Dan Wheat, Barshop Oles

Here are the highlights:

• The Austin Metro Area is expected to double in size to two million by 2025.  This level of growth requires a regional perspective for planning.
• Major sources of capital such as REITs and hedge funds are increasingly interested in investing in Austin.  Many of these larger investors are willing to pay higher costs for land and accept a correspondingly lower ROI.
• Land costs have been driven up recently by national residential developers who are positioning themselves for the next expansion cycle.
• Development costs have increased by about 60% in the last five years. 
• The trend is towards mixed-use developments which incorporate residential, educational, retail, professional, greenspace, and recreational facilities in one location.
• This level of expansion will require smaller outlying communities to seek creative financing in public/private partnerships to provide the extensive infrastucture necessary before retailers can build.
• Most of the occupied retail space in Austin has been sold to investors in the last two years,resulting in a corresponding rise in tax valuations, so that a retailer  who is currently paying $25 per foot might pay $30 next year.  This is one more cost pressure on retailers.
•  While environmental regulations are a major concern, they have not proved to be hinderance to development.