Real Estate Investing

Why Commercial Real Estate Investing in Texas Has a Bright Outlook

More than a century after the state’s oil boom, Texas continues to grow and provide exciting economic opportunities, now in areas ranging from technology to construction to renewable energy. Amidst this growing, diverse economy, vibrant cities such as Austin and Dallas are thriving. Combined with the state’s relative affordability, ample land, natural resources, and many other positive factors, the commercial real estate investing outlook shines bright in the Lone Star State.

Top-Rated Real Estate Markets

When investing in commercial real estate, plenty of factors such as the condition of the properties matter, but location remains one of the most important ones. Fortunately, Texas has some of the best locations in the U.S. for commercial real estate investing, as a mix of people want to live and work in cities like Austin, Dallas, San Antonio and Houston. At the same time, these markets have strong investor demand, which can fuel further growth, both by increasing property values and from new construction adding to the allure of these communities.

In particular, Austin ranks first for overall real estate prospects and first in local expectations of investor demand in 2020, according to the PwC and Urban Land Institute (ULI) Emerging Trends in Real Estate® - US and Canada 2020 report. Austin has significant resident appeal and investor demand due to factors such as its unique “Keep Austin Weird” culture, talented workforce, and “ambitious commitment to business and real estate expansion,” as PwC explains.

Dallas-Fort Worth ranked as the top market for overall real estate prospects in the 2019 PwC and ULI report and remains a top area in 2020. Houston also earned the distinction in the 2020 report for being a major investment capital magnet.

Similarly, Austin, San Antonio, and Arlington (part of the Dallas-Fort Worth metro area) all ranked among the Top 20 best cities to own property to rent out to tenants, according to a study by GOBankingRates.

Furthermore, Austin earned the top spot in the U.S. News and World Report “Best Places to Live” rankings. Dallas-Fort Worth, Houston and San Antonio also all rank among the Top 35 Best Places to Live, and as the publication explains, “To make the top of the list, a place had to have good value, be a desirable place to live, have a strong job market and a high quality of life.”

For investors, these rankings indicate that commercial real estate properties in these markets can attract and retain tenants, and the success of top locations like Austin could spill over to other cities in Texas as the state gets more attention from individuals, families, businesses and other investors.

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Booming Business Environment

To more specifically look at why cities such as Austin and Dallas-Fort Worth have such strong outlooks for commercial real estate investing, consider their flourishing economies. As ULI explains, large projects in Austin such as a planned $1 billion corporate campus from Apple, a new headquarters for the U.S. Army, and expansion from large employers like Amazon, Facebook and Google all help provide a bright outlook for the city. Similarly, Dallas-Fort Worth and its surrounding suburbs are also drawing large tech businesses to move to the area, as The Dallas Morning News reports.

As businesses move into Texas, the demand for office space grows, as does the need for other commercial spaces such as storage and retail businesses that can serve the workforce of these companies. Moreover, as these types of companies move into Texas, the share of young, well-paid employees can also rise, thereby creating strong demand for multifamily apartment buildings in areas where they can live, work and play.

Overall, while rankings differ by publication, Texas generally is considered to have one of the best business environments in the U.S. For example, Texas ranks as the best state for business among a survey of CEOs by the publication Chief Executive. CNBC ranks the state second, based on factors such as Texas’ strong workforce, access to capital, infrastructure and more.  Even its 13th place ranking for business environment by U.S. News and World Report still puts Texas well in the top half in the U.S., led by relatively strong entrepreneurship and a low tax burden.

Thus, as this business environment helps sprout more jobs and support the overall economy in Texas in the years to come, the prospects for commercial real estate investing also look strong.

Young, Fast-Growing Populations

Connected to the booming business environment and cultural appeal of several areas in Texas lies the fact that the state has some of the fastest-growing cities in the U.S., many of which are attracting young individuals.

According to a SmartAsset analysis of Census data, Texas ranks second in the U.S. for where Millennials are moving to on a net migration basis (meaning more are moving in than out), and Dallas ranked as the top city in the country for net millennial migration.

Because Millennials tend to need to wait to buy a house until they save enough for a down payment, commercial real estate investors can benefit from this influx of young individuals who need to find places to live. These Millennial residences often are in multifamily apartment rentals, where they can be close to their jobs and the places where they like to relax outside of work.

In addition to growth from Millennials, many cities in Texas have fast-growing populations as a whole, which can lift demand for the overall real estate market, including the need for new retail businesses and self-storage locations. Among cities with 50,000 or more people, San Antonio and Fort Worth rank second and third respectively among the cities with the largest numeric increase in population, according to Census data. Frisco and McKinney, located near Dallas, rank 10th and 13th.

Moreover, on a percentage-increase basis among cities with 50,000 or more people, seven out of the 15 fastest-growing cities in the U.S. are in Texas, including places such as Midland in western Texas, which may not get as much attention as cities such as Austin.

Conclusion

Across the state, the economy and cultural appeal of Texas shine bright and appear likely to continue to do so going forward. As such, commercial real estate investing in Texas looks to grow, as investors can fulfill individuals’ and families’ demand for housing, while also supplying companies with sufficient office space and related commercial spaces that support their growth.

 

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Ari Rastegar
Author:

Ari Rastegar

Ari has built a portfolio network designed to reduce risk and provide strong quarterly cash flows, with an emphasis on asset classes such as self-storage, multi-family, office, retail, and industrial. He’s been recognized for his specialties in recession-resilient strategies and commercial real estate investments.