The Austin skyline in October. DAVE CREANEY

Austin Business Journal writes, "When asked to sum up 2024, local economic leaders use labels like "solid," a "continuation," and "bright" — healthy, in other words, but not necessarily stellar.

That's because it was a mixed bag, with Austin continuing to search for equilibrium after huge wins in recent years, such as the successful courting of Samsung Electronics Co. Ltd. to Taylor and Tesla Inc. to eastern Travis County.

Central Texas has long been a hotbed for relocations and expansions, starting largely with IBM Corp. coming to town in the 1960s, and continuing with big steps like Samsung picking Austin for a factory in the 1990s. The trend picked up steam and hit a fever pitch during the pandemic, with companies such as Oracle Corp. and Tesla moving their headquarters to Austin. Many others followed, including X, formerly known as Twitter, last year.

But after a couple of up-and-down years, that measure of the economy dipped to pre-pandemic levels in 2024, when Opportunity Austin recorded 10,291 jobs pledged from relocations and expansions, the lowest total since 2015 and 2016. How concerning that trend is depends on who you ask. Sure, the numbers are down from recent years — but Austin's economy was considered stellar in 2015 and 2016.

In terms of quantity, there were about the same number of companies expanding or relocating as the previous year, and there were big wins such as Samsung finalizing its local expansion plans, life sciences unicorn BillionToOne pledging 1,000 jobs at a massive life sciences campus in North Austin, and Soulbrain Holdings Co. Ltd. building a $575 million gas plant in Taylor.

Interest in the Austin area from companies remains solid. Opportunity Austin reported 250 projects in the pipeline — including five it expects to close in the first quarter — with 19% in clean tech, 5% in life sciences, 12% in semiconductors and 17% in advanced manufacturing, showing a diversity in industries.

Outlying metrics continue to look good. Over the last five years, gross domestic product in Austin has grown by 39%, the highest among the top 50 U.S. metros, and 4.5% over the last year, which ranked eighth, and higher than the median of 2.7%, according to Opportunity Austin. Austin's unemployment rate in November was lower than both that of Texas and the U.S., and ranked 14th among U.S. metros last year in job growth with 1.6%.

But what's apparent is that companies aren't jumping to get into Austin like they did in previous years. Local leaders need to continue to address affordability, workforce development, road and utility infrastructure, and declining population growth — all while navigating inflation, tariffs, interest rates and uncertainty surrounding the new presidential administration.

"I think most communities in the country would be ecstatic with the kind of progress and investment we're seeing in this region," Opportunity Austin CEO Ed Latson said. "Compared to some of our historic peaks, maybe not as exciting, but we feel like the momentum is still there and 2025 has the potential to be a solid, great year."

Site selection experts

At least outside of Texas, one thing remains clear: Austin is on the list for companies looking for a place to settle down. But it may not be as high as it once was.

Michelle Comerford, industrial and supply chain practice leader at Cleveland-based site selecting company Biggins Lacy Shapiro and Co., said Austin continues to benefit from a "positive reputation" because many consider it a cool place to live and work, which helps with talent attraction and retention. The Austin-Bergstrom International Airport expansion has made connectivity a draw for many as well.

"We are having companies come into the site selection process sometimes with Austin as a pre-selected test location that they want to consider among the other locations in our analysis," Comerford said.

But in a lot of ways, Austin has been a victim of its own success. With all the wins, the number of companies that have relocated here has created competition for workforce, utility service, land and even construction workers to build factories.

Perhaps the biggest issue is a lack of shovel-ready sites, as those have been gobbled up. That's expected to be a continuing problem in the next couple of years as manufacturers seek sites that can be up and running quickly throughout the country as part of efforts to bring that industry back domestically.

"This is a problem in a lot of places so it's not necessarily just a dig on Austin. But there has been a lot of activity that has gobbled up sites that were ready," Comerford said. "The regions and areas that solve this problem the fastest will be the ones who win the next big investment."

Another challenge is the timeline for incentives in Texas, which can be slow compared to other states.

"That can really put locations across Texas at a disadvantage as compared to some other states for projects where their timelines are key," she said. "This day and age most timelines are critical and fast-paced, and so depending on the project and how much flexibility they have, that may or may not ding a Texas location versus another state in the site-selection process."

Victor Smith, partner in the business services and governmental services groups at Indianapolis-based Bose McKinney & Evans LLP, added that the competition with other companies drives costs. He said "people, cost and power" are chief among the criteria that companies look for when evaluating a locale.

Another dig has been the city of Austin's public opposition to incentives — although he said there are many exceptions in the suburbs, including Williamson County, that are on the radar for many companies. He also credited a more pro-business and pro-incentive approach from Austin Mayor Kirk Watson for helping efforts.

For economic development groups, he said, the most important thing is making sure the portfolio is balanced — essentially meaning that the next step for Austin is to continue to diversify its economy.

"You want different flowers in the bouquet. You don't want just orchids. You got the big semiconductor juggernaut, now you want to go get all the semiconductor suppliers. Well, guess what is probably one of the most cyclical industries in the world?" said Smith, who said his firm is working on 31 projects in 13 states.

While decision-making did slow down at the end of 2024, he expects it to pick up in 2025. And he said many projects did move forward, with areas like the Midwest experiencing some of their biggest years in terms of economic development.

"Many of the top 10 states in economic development that have been consistently leading the charge, many of them — a majority of them — chalked up record years," Smith said.

Controlling what you can control

In terms of economic development, there's only so much that can be controlled. Economic development groups, politicians, developers andothers make their pitches and sell a scenario that might work for a company, but it's on the businesses to decide what makes the most sense for them.

For Latson, what Opportunity Austin can do better is tell the story of the successes on issues like affordability and workforce. That can help overcome the things that can't be controlled, he said, such as interest rates.

For example, he said rents have come down 10% year-over-year, more than 50,000 apartments came online, and housing starts are at a record level and among the highest in the country.

"To me what we're saying is we're really addressing the supply issue and addressing the affordability challenge," Latson said.

In terms of workforce, Tesla ramped up to 20,000 employees, and its hiring didn't stretch the local workforce to where it hindered other companies severely.

"There is a sense out there that we are more unaffordable than we are and labor is harder to finding than it is," Latson said. "We help people succeed, and I think we need to tell that story more."

Other metrics continue to look good. He said CEO sentiments are high, there is a new presidential administration that is perceived as more business-friendly and government investment through things like the CHIPS Act and Inflation Reduction Act should spur confidence in Central Texas.

"Central Texas has companies at scale that are at the forefront of this economy that is emerging around technology and AI and I think that places really well for success and resiliency as we move through 2025," Latson said.

Stacy Schmitt, senior vice president of communications and external affairs at Opportunity Austin, noted that automotive and semiconductors were the second and third key industries last year, sandwiched behind data centers and associated services, and artificial intelligence and energy storage, showing the diversification of the economy.

Many other initiatives will be taken during 2025, especially at the legislative level. They include strengthening incentive programs, like the Jobs, Education, Technology and Innovation Act, and building up workforce pipelines, utility infrastructure and housing affordability, she said.

"While Austin’s success has been widely recognized, the region faces ongoing challenges. However, its ability to adapt, innovate, and collaborate positions it well for sustained growth in 2025 and beyond. The continued expansion of major industries — like semiconductors, life sciences, and aerospace and defense —coupled with new opportunities in AI, clean energy, and infrastructure, will ensure that Austin remains at the forefront of global economic and technological advancements," Schmitt said in an email.

Pipeline remains strong

At least north and south of Austin, economic development leaders are workingthe wealth of interest they received last year.

Mike Kamerlander, president and CEO of the Hays Caldwell Economic Development Partnership, labeled 2024 as "very busy," in terms of prospects. In terms of interest, he said it's overwhelmingly manufacturing and logistics along transportation routes. But the area is starting to see an uptick in data centers and defense-related companies.

The region has landed some major wins, including the Buc-ee's store in San Marcos, a data center in Caldwell County, an electric vehicle supplier in Buda and the U.S. Foods expansion in Buda.

"Everything we've heard since the election from companies and from industry leaders and economists is that we expect this to maintain or even increase depending on how things shake out over the next couple months," Kamerlander said. "When you couple that with business-friendly communities and sites that are now even more for development like AXIS or other sites that are in Caldwell County or along I-35 and (State Highway 130), we are primed for a great year this year to take advantage of a very business-friendly administration."

On the north side, economic development leaders are expecting to see supplier interest from Samsung and Tesla tick up again after an unexpected slowdown in decision-making — the former delayed its opening while the latter was marred by declines in EV sales, according to Williamson County Economic Development Partnership Executive Director Dave Porter.

He added that the pipeline continues to be strong — outside of Samsung and Tesla, life sciences, advanced manufacturing and data center services are ticking up in interest. Companies are waiting on things like tariffs or federal funding before making decisions. But he said having more certainty — like Samsung locked in — will drive more investment this year.

The group is also focusing on what it controls. It's working to overcome electricity challenges, with more direct conversations with Oncor Electric Delivery Corp. It's going to push for incentives tweaks at the Capitol and play up its location along U.S. Highway 79 and reputation in places like South Korea. And it's in the process of trying to identify a new megasite in eastern Williamson County after previous ones in Hutto and Taylor have been gobbled up.

"I think everybody is cautiously optimistic to see what the first 100 days bring and how we navigate and go from that," Porter said."

 

Source: Austin Business Journal 

Written by: Justin Sayers

Published: January 27, 2025

Posted by Grossman & Jones Group on

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