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Austin Coming Back

Sept. 1, 2006
After a crippling blow from the high-tech bust, the economy in Austin, Texas, is back in high gear.

Austin is shining again as one of the brightest stars in the Texas economy. After a three-year slide from 2000 to 2003, when its normally robust residential-construction market suffered and its manufacturing sector lost almost 28,000 jobs, the Austin economy is surging.

As the state capitol for the Lone Star State, home to some of the largest companies in the tech arena and the main campus of the University of Texas, Austin has a diverse business mix to fuel its economy. While Dallas and Houston often receive more attention than Austin for their robust economies, Texans are rightfully proud of Austin's stature as one of the nation's hottest markets.

Austin is one of the seven fastest-growing cities in the United States when ranked against other cities with populations of more than 500,000, according to a survey released in April by the U.S. Census Bureau.

The city's largest employers are the state of Texas, the University of Texas, computer giant Dell and semiconductor manufacturer Advanced Micro Devices (AMD). Austin is a major computer hub, with large operations of tech manufacturing giants Motorola, IBM Corp. and Samsung Electronics Co. In fact, the Austin metropolitan area claims roughly 30 percent of the state's high-tech jobs, according to the Federal Reserve Bank of Dallas.

Expansion is in the air in Austin's computer market — Samsung is building a semiconductor factory in Austin and is hiring approximately 900 workers. The new factory, which will process silicon wafers, is expected to be about three times the size of the company's existing factory in northeast Austin. The new fabrication plant will be the first new chip factory in central Texas in a decade, according to a June 29 article appearing in the Austin American Statesman.

The news is also good in Austin's residential market. The region's 14,360 building permits year-to-date through June are up 42 percent from June 2005. Of these, the 10,230 single-family building permits year-to-date through June show 24 percent growth from June 2005. In terms of 2005 building permits, the National Association of Home Builders (NAHB), Washington, D.C., ranked the Austin-Round Rock metropolitan statistical area (MSA) as the 19th largest single-family housing market in the nation, with 17,080 single-family home building permits issued last year.

It all adds up to some impressive sales for electrical distributors. Herm Isenstein, president, DISC Corp., Orange, Conn., forecasts that electrical distributors in the Austin area will sell approximately $560 million in electrical products this year.

Mike Miller, vice president of Burrus & Matthews Inc., an independent manufacturers' rep in Houston serving the Austin market, has worked in the Austin area for 30 years. He said the Austin market died in the early 1990s, came back very strong in 1997 and 1998 and has picked up steam once again in the past two to three years.

He attributes the strong growth to an influx of high-tech industries from California and suppliers to Dell, Round Rock, Texas. The Austin market is so strong Miller said his company may add an outside sales rep there because he is convinced the city's economy will continue to expand in the future.

Allen Ray, president of Allen Ray & Associates, Arlington, Texas, said Austin's residential market is “red hot.” Ray has talked with several people in the past few months who are moving to the Austin area from California. He said they are building houses in Austin but are encountering delays of 120 days to 180 days before their houses are finished because builders are so backed up.

Dan McCoy, a principal of Bell & McCoy, an independent manufacturers' rep based in Carrollton, Texas, said the Austin housing market is hot in all segments of the market — single-family, multifamily and luxury condo. He predicts the Austin market will be strong for at least the next four to five years.

Scott Schieffer, president, Hill Country Electric Supply, Austin, has worked in the Austin market for 37 years. He was Rexel's southern division president before opening Hill Country Electric Supply's first store, which was in Austin, along with other former Summers Electric (an early Rexel acquisition) employees. The company now has three locations in the Austin-San Antonio corridor.

Schieffer said Hill Country Electric Supply is supplying jobs south of downtown Austin, where high-rise loft construction is booming. Unlike San Antonio, where most growth is occurring to the north and northwest, he said Austin is growing in all four directions, much like Houston.

Construction in Austin is following the traditional construction pattern with residential home building coming in first, followed by construction of gas stations, stores, medical offices and other light-commercial construction. Already under construction are several high-end commercial shopping centers, including the Prime Mall in Round Rock, restaurants, banks and strip centers.

“The support is coming in for it — big mall projects, strip malls, retail, commercial, office buildings,” Schieffer said. “I don't know the exact figure on occupancy, but it's high. They're going to need some more space.”

Hospitals are also expanding in the Austin area. A $105-million, 260,000-square-foot, 151-bed hospital is being built in the Williamson County suburb of Cedar Park, Texas, and a $200 -million construction project is underway at Dell's Children Hospital.

Hill Country Electric Supply's Schieffer said although the Austin economy has historically had steep peaks and valleys, the market will stay strong for several more years.

“The thing about the Austin market is at times we would have feast or famine,” he said. “It might just take off. If you looked at a graph, you'd see it shoot straight up like a ski slope, but then it would drop off. The San Antonio market is kind of neat because it has been steady growth and you can always count on it.”

Another electrical distributor sees solid future growth. Elliott Electric Supply, Nacogdoches, Texas, has doubled its number of branches in the Austin area since August 2001 when Chris Petty, Elliott Electric's central Texas area manager, began covering the market.

Petty believes the Austin area has always needed more roads. “It's a very difficult city to get around because there is a lot of traffic on I-35,” he said. “They're adding toll roads now, three or four roads that will alleviate a lot of the traffic and allow the city to grow even more.”

Austin by the Numbers

2006 sales through electrical distributors

$560 million in sales, according to sales-forecast data provided by DISC Corp., Orange, Conn., for

Building permits

The Austin-Round Rock metropolitan statistical area (MSA) had 14,360 total building permits (single-family and multifamily) year-to-date through June. That's up 42 percent over June 2005.

Major construction projects underway and on the books

A new pediatric center, Dell Children's Medical Center of Central Texas, is scheduled for completion in 2007. The 500,000-square-foot hospital, which is three times the size of the current facility, will rest on 32 acres.

Samsung Electronics Co. is building a semiconductor factory in Austin and hiring approximately 900 workers. Production is expected to begin by 2008.

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