Austin Commercial Market Forecast
Austin, Headlines, Texas Friday, March 26th, 2010The recession is over, or so it is said. Forbes magazine has declared a tie between Austin City and Washington D.C., for showing the greatest economic recovery in the United States. Considering both of these cities display unemployment in the vicinity of 7 %, it is either a very sad story of demise in the rest of the US, or one of overt optimism at Forbes to declare an economic recovery.
Unemployment is by its very nature a lagging indicator, but when the Austin construction industry loses 2900 jobs as it did by year end in January 2010, and when Austin’s La Corsha Hospitality Group unable to meet operating expenses and facing receivership, terminate 112 employees from St. Anthony’s Hotel, such cost cutting by business finds it difficult to raise the flag of economic recovery. Yet it is true that investment in Austin is buoyant, spearheaded by the vigorous competition between General Growth Properties Inc. and Simon Property Group, for total investment in the flailing Highland Mall company, to the tune of $10billion.
Further adding to economic doldrums however, government tax revenue has decreased in Texas by 8.7%. Composed of corporate and sales tax both undergoing reduction of approximately 5%, the national reduction in corporate tax and broader public revenue is far more bleak. With less public expenditure on infrastructure and utilities, economic recovery can barely be supported.
Economic growth may well have entered a plateau from its steep downward spiral of 2007 and 2008, but brazen unemployment and insolvency matters within Austin herself, purport to make an economic recovery something of a mere possibility at this stage. Jobs are an integral component of any recovery, for without support in household income, demand is unsustainable and economic activity sluggish. Indeed, within the spectrum of the aftermath are businesses who are have survived the recession against all odds, to now face large balloon payments on commercial mortgages and loans. The newly restructured financial landscape is rife with regulation, and so many will be desperate to refinance their obligations, or in the alternative, succumb to foreclosure and the process of insolvency. If they indeed survive, they need to contend with sluggish demand which does nothing for revenue.
This being the case, commercial property in Austin is surely destined for further downward pressure. Commercial property in any event is heavily reliant on broader macroeconomic indicators and policy, and in the current climate of uncertain recessionary relief, is unlikely to gain any momentum in Austin. It may be that larger interests such as Camden Property Trust will find recourse in the ability to generate capital through issuing stock, but for most market participants the bottom line will be met sooner or later by refinancing of debt on more suitable terms, or foreclosure.
Given the cash flows available with acquiring commercial property, buyers will have the opportunity to generate impressive returns over time on deflated asset prices. Further adding to these returns in this time of financial and ownership interchangeability, is the flexibility to alter the use that commercial properties are put to. Maximizing property resources in these ways at the commencement of a long term commercial view, particularly with commercial short sales and distressed property, will reap great rewards at the investment exit point. Ideally, the investment ought to entertain placing the property back onto a market which is awash with strong buying power. This will be envisaged to occur when the economy has gained a few quarters of positive economic growth and under threat of its first inflationary concerns since 2007, for profits cannot be taken too soon.
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