I thought I would highlight a few recent company announcements that are impacting the development of several communities on the outskirts of Austin in a big way. I’m talking about Tesla and Amazon.
Let’s start with Amazon, the e-commerce giant, although some of their thunder was stolen with Tesla’s gigafactory announcement, but I digress. Amazon has amassed a collection of over 2 million square feet of distribution/sorting space in Schertz and San Marcos over the last few years. It is now committed to another 1.87 million square feet in the cities of Buda, Kyle, Pflugerville, and Round Rock. For comparison, there was about 1.74 million square feet of new industrial space under construction in the Austin area in the first quarter of 2020 (source COSTAR). Because Amazon is taking so much space off the market, this leaves other companies to fight over the remaining available industrial space causing rents to hold firm and concession such as free rent to dwindle in the micromarkets around them. On a positive note, the introduction of Amazon to areas such as Buda, Pflugerville and Kyle is spurring new residential, industrial, and office development to meet the new demand of workers and businesses that want to be near the Amazon facilities. This is giving developers the confidence to deliver on new construction.
As for Tesla, they are in the process of building their 4 to 5 million square foot gigafactory east of Austin on Tollroad 130 just south of the Circuit of the Americas. Tesla is not actually building in the city limits of Austin, rather, they are in the ETJ (extra territorial jurisdiction) of Austin, meaning they will get some of the city services without having to pay city of Austin property taxes while remaining close enough to attract Austin talent. The 2,100 acres Tesla purchased is relatively inexpensive and they don’t have the regulations/hurdles they would if building in the city limits of Austin. For those that were disappointed that the construction of Tollroad 130 didn’t immediately increase land values along its route and spur significant growth, they are happy now. Since the Tesla land purchase was announced in July of this year, an incredible land grab by residential and commercial developers occurred shortly after making way for single-family housing communities and industrial/office parks along the 130 corridor. There are even land speculators buying land around the Tesla property with the intent to hold until values go up and then selling at a premium in several months and years from now.
With Amazon’s current and continued growth in Central Texas and Tesla’s entry into the area, property owners, developers, and brokers with real estate in the area around these behemoth facilities say they don’t see any negative effects of COVID, unlike other industries and markets that rely on the hospitality and retail businesses for revenue. For those of us that have lived and worked in Central Texas for many decades, we know the Tesla’s and Amazon’s of the world are here now in large part due to committed, visionary community leaders from the past that planted the seeds of the economic success we are seeing today.