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Apple Inc.’s plan to expand its presence in Austin, Texas, with a $1 billion new campus is a good and a bad thing, depending on who you talk to.

Apple’s newest Austin campus will be located less than a mile from its existing facilities in the northwest part of the Texas capital. The 133-acre site will initially accommodate 5,000 additional employees, with the capacity to grow to 15,000, and is expected to make Apple the largest private employer in Austin, per the company’s official statement.

Even prior to the announcement, real estate prices – both residential and commercial – have been on an upward trajectory in the Austin area in recent years. The growth of the city’s tech ecosystem has been largely behind it as its startup scene has flourished and a number of large tech companies have set up large offices in the area (besides Apple, other large employers include Google, Facebook, Amazon, and Oracle among others).

A map of Apple Inc.’s planned new campus in Austin, TX Newmark Knight Frank

The rising home prices and office rents have been both good and bad. Good for landlords and investors. And bad for tenants and buyers.

According to the Austin Board of Realtors, the number of single-family home sales in the Austin-Round Rock MSA was recently the highest on record for any October, generating more than $900 million in sales dollar volume — also a record for October. In the city of Austin, the median price of single-family homes rose 3.7% to $377,000. That’s 74% higher than a median price of $217,000 in October 2013 and 96% higher, or nearly double, than a median price of $192,520 in October 2008.

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For people who bought homes in Austin a decade ago, the surge in home prices has been great – except when it comes to the corresponding rise in property taxes that are pricing some out of their homes. Buyers are moving from other markets at record rates, one recent report from the Dallas Business Journal found that nearly 300 companies moved to Texas from California in a years’ time. Those expecting more affordable prices have experienced a certain degree of sticker shock. But still, in the end – home buyers can still get a lot more bang for their buck here than in California’s Santa Clara County where the median home price was $1.25 million in November.

Karen Choate, a Realtor with Coldwell Banker in Austin, said her son, Jarrod, is an example of a person who has already experienced a surge in property taxes.

He purchased his three-bedroom, two-bathroom home that backs onto Riata Trace Parkway, where the existing Apple campus is located, in 2007 for $157,000. In 2018, the Travis County Appraisal District appraised his property for $252,825. The appraised market value of his 0.243 acres of land in 78727 (the same zip code as Apple’s planned new campus) in 2015 was $40,000. In 2016 and 2017, the appraised market value was $75,000, and in 2018, it was $125,000, according to Choate.

“What is driving the increase in property values is not improvements to properties, but the appraised value of the land,” she said. “Because believe me, when I say, he hasn’t done $85,000 worth of improvements to his land in three years.”

In general, Choate believes Austin’s housing market is already pressured enough.

“Austin has been a seller’s market for at least 10 years, and it was not impacted by the 2008 recession as many other cities across the nation were,” says Choate, who specializes in Northwest Austin. “Good paying jobs, no state income taxes, and the relatively low cost of living are what have drawn, and will continue to draw people to Texas. But as far as housing goes, there are pros and cons to Apple’s new campus, and it boils down to basic economics — supply and demand. As the demand for housing goes up, unless the supply increases at the same rate, the prices go up.”

And it’s not likely supply will increase at a corresponding rate. Already, builders have not been able to keep up with the demand for entry-level single-family homes in the city. As a result, there is a lack of “affordable” single-family, entry-level homes in the Austin area, which has forced many families to move to the suburbs of Cedar Park, Round Rock, and Leander.

“It would be awesome if the Robinsons, the family who is selling some of their land to Apple for its new campus, would also set aside another big chunk of their land for builders that are required to build affordable housing for people and Apple workers who will need it,” Choate added. “Because Austin is quickly becoming an overpriced San Jose, California, as far as real estate goes.”

Overall, though, she is optimistic about Austin real estate sales but believes the increased pressure on the real estate market due to higher valuations and property taxes will force homeowners on fixed incomes to sell.

Meanwhile, Realtor and investor Lucy Tschirhart of All City Real Estate believes the news will prove to be a strong selling point.

“Realtors (including myself), loan officers and builders will be citing the new campus to help buyers and sellers make decisions that absolutely increases confidence in buying and selling in all of Austin, but certainly in the proximity of the new Apple campus,” she said.

Impact On CRE

A similar conundrum applies for startups and other tech companies looking to either have headquarters in the city or open another office here. Office rents have climbed as demand continues to outweigh supply.

Property taxes, too, have risen to the point that many businesses that had been operating in the city for decades have no longer been able to keep up and have been forced to shut down, as I wrote for Crain’s in 2016.

Still, Jesse Weber, senior managing director of commercial real estate brokerage Newmark Knight Frank, believes Apple’s planned expansion in Austin is “the most meaningful development driver” in North Austin since Endeavor Real Estate Group and Simon Property Group began the first phase of building out The Domain (a large mixed-use development) in 2003.

He also notes that the Northwest Austin office submarket where the campus will be located is, in general, experiencing historically low vacancy rates and historically high rents.

“These accelerated rent escalations affirm Apple’s decision to purchase and build versus lease,” he says.

Since Apple is building its new campus, as opposed to leasing it, one would think the impact on rents would be less. And perhaps directly, they will be. But indirectly, the trickle-down effect of the increased demand for contractors and subcontractors will ultimately make their way down to increasing rents all over the city, believes Scott Studzinski, a partner at tech-focused commercial real estate firm Elevate Growth Partners.

He points out that in general, Austin has seen major development across the city across all asset classes from hotels to multifamily to office buildings over the past eight years.

“Having to build new product at today’s construction prices has put pressure on developers and landlords,” Studzinski says. “Contractors are rapidly moving to Austin to make up for the fact that traditionally there’s only been a handful of big construction companies here. And ultimately, there’s only so many subcontractors. It’s especially hard to find people to even show up and bid on projects that aren’t considered big…So I expect that’s only going to get worse.”

Disclosure: My husband works as an account manager within the operations department at Apple.

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