Austin Sees Firming Labor Market

At a time when many Texas areas are facing increasing headwinds from falling energy prices, Austin remains among the top in terms of job growth. However, recent labor market data show that the unemployment rate in the last three months of 2015 increased despite the area’s year-over-year nonfarm payroll job growth of over 3.5 percent as of December. This is because of a significant upswing in labor force growth in 2015Q4. We expect job growth to moderate in 2016-17 as the spillover effects of unfavorable energy prices and the strengthening dollar weigh on the local economy.

The Austin area’s real estate market has been very conducive to homeowners and sellers in 2015 with elevated home prices. Tighter occupancy rates fueled by a rapidly growing population made apartment rents climb as high as 40 percent over the past five years. As a result, Austin residents are paying as much as 30 percent of their income in apartment rentals. House price appreciation in the area has more to do with tighter supply than the speculative demand found in some California and Florida markets. The area may soon face affordability problems if home prices continue to appreciate more than income growth, as seen in recent quarters.

Attracted by the favorable business climate, many transportation and real estate businesses are competing to expand and add new services. Some airlines such as Denver-based Frontier Airlines and Fort-Worth based American Airlines are adding more nonstop flights from Austin. The increasing concentration of companies from around the globe has spurred the Class A office space rental rate to climb by as much as 13 percent year-over-year in 2015Q4. Oracle Corp. is planning to build a massive 560,000 square foot campus in East Austin and has acquired a 295-unit apartment building as a part of its plan to upgrade workforce by 50 percent in the area. We expect Austin’s office space market to remain tight in 2016.

Austin 2016Q1

Click here for the complete Austin Regional Economic Update: Austin 2016Q1.

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