Central TX Roundup | JLL Multifamily | 2/12/2024

Summary

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• On 60 Minutes, Powell holds the line on his cautious approach to cutting rates
• The dissonance between a strong jobs report and layoff announcements have likely pushed rate cuts back to May
• Longer construction timelines will contribute to a long-term shortage of housing supply
• Austin has retaken the top spot on the Milken Institute's prestigious 2024 Best-Performing Cities list
• Big changes could be coming to far west Austin (halfway to Marble Falls) as Thomas Ranch plans 500+ multifamily units
• 600k SF of spec industrial space under construction to support the 4th fastest growing town in America (Leander)
• SAWS’ recommended updated impact fees would increase by 23% on average starting June 1st
• Port of Laredo is named the top international trade port in U.S. in 2023
• CoStar confirms the imminent decline in multifamily construction starts
• Brooks expresses interest in continuing to develop beyond their 1,300 acres?

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National and State News

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Powell Says Fed Has New Focus: When to Cut Rates (WSJ)

• Why it matters:?Powell holds the line on his cautious approach to cutting rates. ???
• Powell, in a rare television interview on CBS last Sunday night, indicated caution in approaching the decision to reduce interest rates, given the recent economic strength.
• During his TV appearance, Powell reiterated his belief that the Federal Reserve doesn't have to wait for inflation to reach its 2% target before cutting rates.
• Powell also expressed expectations of a decline in 12-month inflation rates in the coming months, as they will be compared to higher levels from a year ago. However, he cautioned that it was too early to declare a soft landing for the economy and acknowledged that more work needs to be done.

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Layoffs and Hiring Are Not Adding Up (CoStar)

• Why it matters:?The dissonance between a strong jobs report and layoff announcements have likely pushed rate cuts back to May.
• Despite the economy's ability to avoid a recession in 2023, there is a continuous stream of firms announcing layoffs every day.
• The overall hiring trend remains strong, with nonfarm employment increasing by a significant 353,000 positions in January, the highest rate since last January.
• January's wage growth indicates a favorable labor market for workers, with average hourly wages growing by 0.6% and a 4.5% increase compared to the previous year.
• The robust jobs report for January has shifted expectations for rate cuts. Federal Reserve Chairman Jerome Powell stated clearly during a press conference that the policy-making committee would not be confident enough to lower the policy rate in March due to insufficient "good" data on falling inflation.
• Considering the unexpected wage growth in January's report, which could potentially drive inflation, the Fed is likely to adopt a wait-and-see approach. Market expectations currently place a 20% probability of a rate cut in the committee's March meeting and a 70% probability of the first rate cut occurring in May.

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Multifamily Construction Timeline Hits Record 25-Month High (CoStar)

• Why it matters:?Longer construction timelines will contribute to a long-term shortage of housing supply.
• Supply chain issues and pandemic-related work stoppages have contributed to the time it takes to construct a multifamily building increasing from 18 months to just over two years over the past nine years.
• The extended construction schedules are partly due to a change in the type of apartments being built. The proportion of completed units in garden apartment projects decreased from 42% in 2015 to 23% by the end of 2023, with more complex projects like mid-rise and high-rise buildings dominating the pipeline.
• Although the multifamily sector is facing oversupply challenges, the prolonged construction lead times could result in a delayed supply response once the excess units are absorbed. If a significant number of nearing completion units fail to materialize when the market reaches equilibrium, rent growth could accelerate once again.
• In 2024, the lack of available construction debt, delayed permitting, and higher material costs have hindered developers from initiating projects. If these conditions persist and multifamily starts continue to decline, the projected supply for 2026 could be lower than the current expectation of 232,000 units.

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Austin News

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Austin takes top spot as 'best-performing' US city (ABJ)

• Why it matters: Such a honor will undoubtedly draw the eyes of people looking for a new place to live or start a business.
• The prestigious 2024 Best-Performing Cities list from the Milken Institute has once again ranked the Austin area as the top city. Published since 1999, the index evaluates cities based on various metrics, including job creation, wage growth, and output growth.
• Austin's current position at the summit of Milken's largest cities category marks its return to a position it last held in 2013. It ranked second in 2023 and 2022, following three years in the third spot.
• The report describes the region as a leader in sustainable and equitable growth within the post-pandemic U.S. economy, which continues to expand despite inflation and rising interest rates. Here are some key highlights:

• Austin secured the first rank in five-year job growth, with its tech sector experiencing a growth rate of nearly 63% between 2017 and 2022.
• The metro area witnessed a 23% increase in its job market between 2017 and 2022, accompanied by a significant 73% rise in wages during the same period.
• It achieved the eighth position in terms of five-year growth in high-tech gross domestic product and ranked seventh for high-tech GDP concentration.

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Hundreds of apartments slated to rise in Thomas Ranch development west of Austin (ABJ)

• Why it matters: Big changes could be coming to far west Austin (halfway to Marble Falls) as Thomas Ranch continues to unfold.
• The development of Thomas Ranch, a 2,200-acre mixed-use project on Lake Travis, is progressing, with the first phase of construction focused on the private residential community called Loraloma by developer Areté Collective LP. In addition, Wasatch Premier Properties has joined the project to construct numerous multifamily units on a separate 58-acre parcel west of Austin.
• According to Joe Rentfro, managing director of the Thomas Ranch project, the vision for Thomas Ranch is to collaboratively establish "a new (economic) hub for the Texas Hill Country region." He emphasized that the multifamily project is just the beginning.
• Wasatch intends to develop 500 apartments and 100 townhomes on the property. The project is currently undergoing Travis County's site development permitting process. Groundbreaking is scheduled for 2025, with completion anticipated in early 2026.

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EastGroup Properties targets booming suburb for next industrial project (ABJ)

• Why it matters: Leander continues to see rapid growth.
• A prominent industrial developer focusing on the suburbs of Austin has unveiled plans to introduce an additional 600,000 square feet of speculative space to the rapidly expanding market in the northwest region of the city.
• EastGroup Properties Inc., a Mississippi-based company, expects to commence construction this year on the initial phase of a development known as Heritage Grove in the flourishing city of Leander. Situated on approximately 44 acres at 500 Heritage Grove, the property will contribute to the surging industrial growth in the area.
• Leander, recognized as one of the fastest-growing cities in the country, has become a hotspot for industrial development. With a population of 74,375 in 2022, experiencing an impressive year-over-year increase of nearly 11%, it ranks as the fourth fastest-growing city in the United States among those with at least 50,000 residents. The neighboring city of Georgetown holds the #1 spot.

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San Antonio News

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SAWS is Updating Their Impact Fees on June 1st, 2024 (RECSA – No Link)

• Why it matters:?The recommended updated impact fees would increase by 23% on average.
• Impact fee rates are assessed based on the recordation date of the plat. If a plat is recorded prior to June 2024, the new rates will not apply. The only exceptions being a change in the type of development or a request to increase capacity from what was designated on the recorded plat.
• The recommended changes will come before City Council in April / May.
• Reach out for the summary.

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Port of Laredo is top international trade port in U.S. in 2023 — and it's poised to keep growing (SA Express News)

• Why it matters:?Proof of the proliferation of nearshoring, more and more international goods will be coming up the I-35 corridor.
• In 2023, the thriving Port of Laredo achieved a historic milestone, becoming the top international trade port in the United States for the first time and maintaining this position throughout the year. It also achieved a record-breaking trade value of over $300 billion, marking a significant increase of more than 7%.
• As per recently released data, the United States conducted $798.83 billion in trade with Mexico, surpassing the previous year's record established with Canada.
• Despite an overall decline in U.S. trade by 3.85% to $5.1 trillion in 2023, Mexican trade and trade through the Port of Laredo continued to grow. Nonetheless, this total represents the second-highest trade value ever recorded, with the peak occurring in 2022 at $5.3 trillion.
• In the rankings, Chicago dropped to the third position, trailing behind the Port of Laredo and the Port of Los Angeles, which experienced a 6.1% decrease in trade volume. Following them were New York's JFK International Airport in fourth place, with a decrease of 6.1%, and the Port of Houston in fifth place, experiencing a decrease of 6.5%.

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Clawback in multifamily leaves questions about where market is positioned (SABJ)

• Why it matters:?CoStar confirms the imminent decline in multifamily construction starts.
• According to CoStar, the number of apartment units started by multifamily developers in San Antonio was approximately 12,000 in 2022. However, in 2023, this figure decreased to about 10,000.
• The most significant decline occurred in the fourth quarter of 2023, with CoStar recording only 1,500 multifamily unit starts in San Antonio. This represents less than half of the starts witnessed in the first quarter of that year.
• The decrease in investment extends beyond well-capitalized institutional players. CoStar's data reveals a 36% decline in completed sales for this market segment, while private equity groups experienced an even more substantial decline of 67% in sales. Despite market share fluctuations across different investor classes, there is an overarching trend of capital drying up across the board, as highlighted by CoStar's Danny Khalil.?

After 10 years of Brooks’ growth, CEO Leo Gomez contemplates life beyond its redevelopment (SA Express News)

• Why it matters:?Brooks expresses interest in continuing to develop beyond their 1,300 acres.
• Over the past two decades, the redevelopment of the former Brooks Air Force Base has exemplified the profitable construction of high-end retail, hotels, and various types of housing in the South Side.
• As Brooks and his life enter a new chapter, Gomez is now focusing on the remaining 307 acres of the base's 1,308-acre footprint. Alongside other leaders of the development authority, they are contemplating future plans beyond Brooks. Gomez expects the development of these 307 acres to be completed within three years, with a maximum timeline of five years.
• While expanding beyond the boundaries of the former base, the Brooks nonprofit organization has acquired a neighboring defunct golf course as part of the local initiative to establish an arboretum. Within the base itself, growth and development continue to be vibrant. Terramark, an urban homebuilder, is constructing Southlake, a collection of 63 townhomes that represents the first for-sale homes within the community. Additionally, a neighborhood consisting of single-family rentals is currently under construction, and the first phase of the WatersEdge class A office complex is nearing completion.
• Q: "Would you say that after the campus is built out, your mission will be to keep developing the South Side?"
• "I wouldn’t go as far as saying the South Side — the Brooks region. The Brooks region is actually a defined region by the city of San Antonio from the SA Tomorrow plan. The Brooks region in the plan is actually about 7,500 acres. That includes our 1,300 acres. Our intent is to develop our 1,300 acres and be an influence in the development of the area around us. Develop [other developments] ourselves; help developers secure property; help developers and other stakeholders envision what could go on certain parcels."