Downtown Austin: A building boom that won't stop

Downtown Austin on Monday, November 19, 2018. (Jay Janner/American-Statesman)

Residential growth is reaching 'the stratosphere,' market experts say

Published December 20, 2018

It's hard to imagine now, but picture this: In the early 2000s, only about 4,000 people lived in downtown Austin and not much was open after dark. Back then, skeptics viewed developers' vision of turning downtown into a lively vertical neighborhood as more of a pie-in-the-sky dream than a realistic goal.

But two decades later, that's precisely what has come to pass.

Now with just over 14,000 people living downtown —a number that some experts predict could double by 2040 — demand for urban living has exceeded expectations, local real estate experts say. And downtown continues to evolve with a ever-expanding array of dining, shopping, entertainment and cultural attractions, fueled by its growing number of rooftops.

Further propelling the downtown living trend has been the exponential growth of the tech sector downtown. It's a surge that is continuing with major expansions by companies including Google, Facebook and Indeed that will bring thousands of more workers into gleaming new high-rises, driving demand for downtown housing higher still, experts say.

Over several successive waves of high-rise building, downtown's condominium and apartment towers have gotten bigger, taller, costlier to build and more expensive to live in. Some buyers are now paying over $1,000 per square foot for their luxury units.

Charles Heimsath, a local real estate consultant who many developers hire to conduct market-demand studies for their proposed projects, says a new era has dawned downtown, one that has it reaching toward "the stratosphere."

"We are entering an era where we're building projects that would be at home in Dubai or Singapore or London in terms of their scale and expense," said Heimsath, president of Capitol Market Research. "It really is astounding."

Tall and taller

The Independent, also known as the "Jenga tower" for its cantilevered design, is currently the tallest building on the Austin skyline. Soaring 58 stories in downtown's Seaholm district, the soon-to-open tower with 363 luxury condominium units could be surpassed by a 66-story project proposed for West Sixth and Guadalupe streets. As currently planned, that project, called 6 X Guadalupe, would have 349 apartments, about 600,0000 square feet of office space and street-level retail. The developers, Kairoi Residential and Lincoln Property Co., plan to start construction in the spring.

On downtown's southeastern edge, several more high-rises are in the planning stages. They include a 51-story condominium tower in the Rainey Street area proposed by Vancouver developer Intracorp, and a 52-story tower planned by Dallas-based Genesis Real Estate Group that would have 452 luxury apartments. Genesis' Gordon Ip said work could start in mid- to late January to demolish an older condominium project on the site, and construction on the new tower could start early in the second quarter of 2019.

Meanwhile, buyers have signed contracts for most of the units in the four towers currently under construction that will add 780 condo units downtown. In addition to the Independent, those projects are the Austin Proper Hotel & Residences, which will have 99 luxury condos above a 244-room hotel; 70 Rainey, with 164 units overlooking Lady Bird Lake; and Fifth & West, a 39-story project with 154 upscale residences that is due to open next month.

At Fifth & West, the one- to four-bedroom units range in price from the mid-$400,000s to $6 million. Buyers include first time homeowners; families with children; empty nesters and multi-home owners.

"We continue to exceed our sales goals and are pushing pricing as well, a real testament to the demand and depth of the market," said Barrett Lepore with Austin-based Riverside Resources, the developer of Fifth & West.

Lepore said a strong Central Texas economy continues to support the downtown Austin luxury condo market.

"Austin is a regional attraction with a vibrant culture, growing culinary space, live music and temperate weather," Lepore said. "The downtown Austin landscape has dramatically changed over the last decade and we expect that change to continue."

Looming shortage?

Even as scores of new buildings continue to transform the skyline, at least one downtown real estate broker says a key sector potentially is at risk of falling behind: residential housing.

Of the dozens of projects under construction, planned or recently completed in the downtown area, only four of the projects currently under way are residential condominium buildings. Many of the others that are being built or planned are office towers, along with some hotel, apartment and mixed-use projects.

After the four under-construction condo projects come to the market over the next few months, "there won't be another condo tower (Intracorp's planned high-rise ) that delivers until the end of 2022," said Kevin Burns, a real estate broker who specializes in the downtown condo market.

That gap in the condo-development pipeline, coupled with the anticipated influx of thousands of additional downtown tech and other employees, means a shortage of condo units could be looming for downtown, Burns said. A projected surge of anywhere from 35,000 to 50,000 additional workers, based on 7 million square feet of office space that is under construction and planned in and near downtown, "will drive that much more demand for downtown living."

"We're going to have a residential housing shortage in downtown Austin in the next two to three years, if not already," Burns said. "There's extreme depth to the market. We need more product."

Burns' firm, Urbanspace Real Estate + Interiors, is marketing the units in the Independent, and also is the exclusive marketing broker for Intracorp's proposed tower, called 44 East. Urbanspace will begin marketing units for 44 East in the spring, with prices anticipated to start in the $400,000s and climb into the mid-$3 million range.

Burns said about 90 percent of the 363 cq luxury condos in the Independent are under contract (the remaining units are priced from about $650,000 to over $3 million) — "and we're still a few months away from our first unit delivering. That shows strong demand."

If downtown were to end up with its housing supply lagging demand, the imbalance would cause apartment rents and condo prices in the already pricey downtown market to rise even further, Burns said.

Other real estate experts don't see the need for a lot of new for-sale condo units right now. Heimsath said more rental units are needed "to maintain a healthy balance between places to work and places to live."

In general, maintaining a growing inventory of residential units downtown, Heimsath said, will alleviate some of the traffic congestion on MoPac Boulevard (Loop 1) and Interstate 35 "because office workers living downtown won’t have to get in their cars to go to work."

Downtown Austin Trends

Percent %
Change Since
Residential Profile 2000 2010 2000 2010 Estimates
for 2016-2018
Population (ACS) 237.46% 84.5% 4,175 7,625 14,085
Total Housing Units 302.8% 65.6 2,331 5,670 9.390
Median Household Income 174.4% 46.7% $37,210 $69,583 $102,112
Median House values (of owner-occupied units) 248.8% 28.6% $116,183 $347,608 $447,100
Sources: U.S. Census Bureau, the U.S. Census Bureau American Community Survey and the Downtown Austin Alliance.

Benefits of density

Although many people cannot afford to live downtown, or prefer a house with a yard in the suburbs or elsewhere, proponents of density say residential development downtown carries benefits for the entire community — not just downtown dwellers.

Mike Kennedy, principal in the Austin office Avison Young, a commercial real estate services firm, once summed it up this way: “Downtown is the financial engine that puts money into every other segment of the city."

Kennedy elaborated on that view in a recent email interview, saying that downtown "is and always will be the backbone" of the city. "As evidenced in the previous 10 years, as downtown continues to thrive and grow, we will begin to see new areas develop and feed off of this success."

Perry Lorenz, one of the developers of the Independent, says projects like the Independent highlight the benefits of vertical neighborhoods.

The Independent's residents will be "living on a small footprint, which equates to dozens of blocks of a conventional residential neighborhood, yet residents will not be watering lawns nor getting into their cars routinely, while generating millions of dollars in (property) tax dollars to pay for schools, city services and infrastructure all over the city," Lorenz said last year.

Jenell Moffett, director of research and analysis for the Downtown Austin Alliance, a nonprofit coalition of downtown business and property owners, said downtown is on pace to add about 1,000 residents each year. Since 2010, its population has increased by 85 percent, compared with 20 percent for the city as a whole, Moffett said. She said millennials make up about 40 percent of downtown residents.

Currently, about 2,000 residential units are in the planning pipeline for downtown, she said.

"Austin itself is growing in terms of its employment and workforce and the types of jobs it's attracting," Moffett said, "and a lot of those employees choose to locate in downtown, and with that the housing follows."

Residential transformation

Burns, the downtown real estate broker, has witnessed downtown's residential evolution, having lived in five of the downtown projects through the years.

The first wave came in the late 1990s, when a few older buildings were converted into condominiums, namely the Brazos Lofts, the Avenue Lofts and the Brown Building. The next surge brought the Nokonah, the Plaza Lofts and the Austin City Lofts. A third spurt included the Milago in the Rainey Street area, which set the stage for bigger projects, Burns said.

"Before that, all the projects were fewer than 200 units," Burns said. "Milago proved up that the market could absorb a building with more than 200 residences."

With that milestone reached, a fourth wave ensued, ushering in the Shore, the 360, the Sabine and Spring. The 42-story Spring high-rise, built next to Whole Foods Market's headquarters, was developed by Lorenz, Diana Zuniga, Larry Warshaw and the late Robert Barnstone.

And there was to be yet another wave that brought the Four Seasons Residences, the W Hotel & Residences and the 56-story Austonian, the tallest building on the skyline until the Independent. Spring, the W residences and the Four Seasons project all opened during a recession, which put the market on pause until the Seaholm Residences opened in 2016, the first new residential high-rise to open since 2011, Burns said.

Strong demand for the Seaholm units kick-started the four projects that will be finishing up in the next few months.

Downtown's offerings are no longer aimed "at just young recent graduates," and that is one of the key factors fueling demand, said Jeff Henley Jr., a downtown resident and 26-year old brokerage associate with commercial real estate services firm Avison Young. Henley -- who lives downtown in the Seaholm Residences -- pointed to attractions like Movies in the Park, the Paramount Theatre, cq the Violet Crown movie theater and the new Austin Central Library.

Kennedy, the Avison Young principal and a downtown resident himself, said downtown has become increasingly attractive as more restaurants and other amenities have been added over time. And the Whole Foods and Trader Joe's grocery stores "make it a walkable neighborhood no matter where you live downtown."

Lorenz said the importance of Whole Foods cannot be overstated, calling it the reason that "half of the buyers" living in the Spring tower across the street were drawn to that project.

The growing number of tech companies that have altered downtown's traditional tenant base and continue to bring well-paying jobs are a force in accelerating the pace of the transformation sweeping the central business district.

"There's an explosion of tech/ corporate companies coming downtown that are paying their employees high enough wages to live close to work," Henley said.

A few years ago, Lorenz said he knew in an instant that a seismic shift was taking place downtown. It came at a real estate event, when a Fortune 500 tech company executive, asked about the impact of downtown's pricey office rents, seemed perplexed by the very question.

"He seemed to have absolutely no sensitivity to lease rates," Lorenz recalled. He said 'the rent number is such a tiny percentage of our top line (total revenue).' I knew then that this was a different animal. We haven't seen this before."

Chicago-based Magellan Development Group plans to build a high-rise hotel and residential tower at this site on East Fifth and Brazos streets. A company spokesman said Magellan is still in the preliminary stages of the development and hasn't finalized details yet. A published report in August said Magellan was planning a 32-story building with 274 apartments and about 400 hotel rooms. (Jay Janner/American-Statesman)

'Place over space'

These days, Burns said, downtown condo buyers span the demographic spectrum.

"It's people deciding to choose place over space," Burns said. "They want to turn their neighborhood into their living room."

Natasa Valocchi, a senior event planner at George P. Johnson, an experiential marketing agency, and her husband, Michael Valocchi, an IBM executive, have lived in the Austonian downtown for the past year-and-a-half, after living in the Cat Hollow/Avery Ranch area for 15 years.

Natasa Valocchi says they wanted to live downtown for lots of reasons: "Ready access to the arts and restaurants. A more involved lifestyle from friendships to community involvement. The ready-made community supported by the urban dwelling. Those are just the tip of the iceberg," she wrote via email. "Being in the heart of our vibrant city, watching it blossom year to year, it is really something."

Forrest Preece, a retired advertising agency owner, and his wife, Linda Ball, a retired computer programmer, also live downtown, in the 360 high-rise on Nueces Street.

Preece and Ball are longtime Austinites. He is a fifth-generation native and Ball had been in Austin since 1975.

"We gave up our beautiful home with our park-like yard in north central Austin and moved downtown over 10 years ago," Preece said.

He said the couple enjoy living walking distance to bookstores, music and other venues and their favorite restaurants like Fixe, The Grove, La Traviata and Jeffrey’s.

"Are we on an upward trajectory for cost of living? Yes, but where in town aren’t you? And we did our best to protect ourselves; we bought our condo outright 10 years ago and we lived long enough to get a little relief on our property taxes."

Preece said he doesn't share the view of some people who think downtown is so crowded nobody goes there anymore.

"When people talk to us about downtown density causing traffic, we just laugh to ourselves," Preece said. "Fact is, we rarely use our cars any longer, except when Linda drives to play tennis or we go to old favorite places like Fonda San Miguel. And we have walked as far as Avenue B Grocery and the LBJ Library."

As far as Preece and Ball are concerned, "the longer we are down here, the better it gets," Preece said. "The only problem we have on the entertainment score is deciding what to do each day."

Here is a look at the residential and hotel high-rises set to debut in downtown Austin in 2019:

The Independent

Location: 301 West Avenue

Developer: Aspen Heights; Constructive Ventures

Number of stories: 58

Units: 363

Opening: Early 2019

Click here to see the "Jenga Tower" under construction. 

The Independent. (Jay Janner/American-Statesman)

Fifth & West Residences. (Jay Janner/American-Statesman)

Fifth & West Residences

Location: West Fifth Street and West Avenue

Developer: Riverside Resources

Number of stories: 39

Units: 154 condominiums

Opening: December 2018

Gables Republic Square/Hotel ZaZa

Location: 422 Guadalupe St.

Developer: Gables Residential; Hotel ZaZa

Number of stories: 24

Units: 221 apartments and 159 hotel rooms

Opening: Summer 2019

Gables Republic Square/Hotel ZaZa. (Jay Janner/American-Statesman)

Austin Proper Hotel & Residences. (Jay Janner/American-Statesman)

Austin Proper Hotel & Residences

Location: 600 W. Second St.

Developer: 'The Kor Group and Goldman Sachs & Co.

Number of stories: 33

Units: 99 condominiums above a 244-room hotel

Opening: Spring 2019

70 Rainey

Location: 70 Rainey St.

Developer: Sackman Enterprises Inc.

Number of stories: 34

Units: 164

Opening: Early 2019

70 Rainey. (Jay Janner/American-Statesman)