Social media giants, internet companies, the world’s largest retailer and the U.S. military.
That’s just a short list of the players moving into or expanding their operations in downtown Austin in a race to attract tech workers.
The result, experts say, could be a transformation of the city’s core into a technology center similar to San Francisco and Seattle, both of which have seen backlash due to the rising costs and congestion that have ensued.
Downtown Austin’s tech roster includes major players such as Facebook, Google and Indeed, which already have sizable workforces downtown and combined have added, or will add hundreds of thousands of square feet of office space to accommodate their growth.
Newcomers include Walmart, which this year opened an engineering hub downtown that features all the perks you’d find at a young, cutting-edge startup.
Walmart ATX, at the former home of the Alamo Drafthouse Cinema at Fourth and Colorado streets, will develop emerging technology such as machine learning, artificial intelligence and blockchain for use across the company’s global operations.
After a national search, the U.S. Army last month chose downtown Austin for its new Futures Command center, which will lead modernization projects for the Army’s top programs.
The latest tide of tech firms locating or expanding their footprint downtown continues to reshape Austin’s central business district. The companies are bringing hundreds of new workers and causing ripple effects throughout the economy, including boosting Austin’s tax base and furthering the city’s reputation as magnet for tech talent.
Mike Kennedy, principal in the Austin office of global commercial real estate services firm Avison Young, has watched as more tech companies have moved into the downtown area, expanding the tenant mix beyond the traditional downtown base of government offices, financial institutions and professional services.
The changing tenant mix, Kennedy said, “has given rapid rise to a heavily diverse economy positively influencing all facets of industry.”
“This contribution has in turn allowed for astounding job growth, attracting both domestic and international talent,” Kennedy said. “The influx of new talent and Austin’s growing reputation as an innovative tech hub has boosted the overall tax base, stimulating additional development, which has helped expand the boundaries of traditional downtown, further enhancing Austin’s overall vitality and quality of life.”
The downtown tech surge is happening because companies believe being part of a creative, thriving tech ecosystem is the best way to attract top talent in a highly competitive market, said Diana Holford, senior vice president in Austin with JLL, a global commercial real estate services firm.
“The energy and the positive vibe are invigorating,” Holford said. “You can feel the vivacity of the city, which doesn’t end with the workday. Rather it continues into the wee hours of the morning. As a result, this is a magnet for a young urban workforce. It is that workforce that companies covet.”
Co-working spaces, incubators and tech accelerators such as Capital Factory are also playing key roles in downtown’s growth as a creative tech hub, said Charisse Bodisch, senior vice president of economic development with the Greater Austin Chamber of Commerce.
“These are important elements to the dynamism of downtown,” Bodisch said. “This innovation component was a factor in the recent Army Futures Command win. To our local ecosystem, it provides the energy, creativity and open exchange of ideas that propels technological advances. This is the environment that causes an explosion of ideas yet to be realized.”
Currently, nearly half of all tenants looking for downtown space are likely to be tech-related, Kennedy said.
“If you were to include East Austin and South Austin, two rapidly emerging areas being quickly consumed by downtown’s expanding borders, that number exceeds well over 75 percent and will inevitably increase as more office space is delivered in the near future,” Kennedy said.
Of the 10.8 million square feet of office space downtown, about 405,000 square feet — just under 4 percent — has a tech or tech-related tenant, Kennedy said. Figures from the Greater Austin Chamber of Commerce show that of a total of 113,400 downtown jobs, about 13.4 percent, or 15,174, are tech-related jobs.
Tech culture change
The migration of tech players downtown is a major shift from the 1990s, when the region’s most promising software firms converged in suburban offices along Capital of Texas Highway (Loop 360), where new developments offered an abundance of affordable space.
Small tech upstarts began moving downtown in the early 2000s, as more high-rise condos and apartments went up, making it possible to work within walking distance of where you lived. A wave of larger companies followed, including software maker Atlassian, Athenahealth and Under Armour, which has made downtown Austin the digital headquarters where it develops the technology for its connected devices.
The latest wave of development is being driven by tech giants that began with smaller spaces. Facebook opened a seven-person Austin office in 2010, its first major U.S. expansion outside its California base. Now Facebook and Indeed are each leasing 10 floors in buildings still under construction.
Facebook now has 700 employees in downtown Austin. Indeed employs 1,600 people in Austin and plans to add 3,000 workers over the next several years.
Google, meanwhile, has more than 800 employees in Austin working on projects across Android, G Suite, Google Play, Cloud, people operations, finance and marketing.
The changes have transformed downtown into an energetic district that doesn’t go dark when the workday ends, local office brokers say.
The new generation of buildings downtown is
coming with a growing array of amenities, JLL’s Holford said. Those include tenant lounges, larger fitness and locker room areas, open-air decks and large communal spaces.
Many are tailored to the tastes of millennials, with ping-pong tables, baristas and artwork geared toward a younger, hipper demographic.
With many employees being able to work from anywhere, there is a bigger demand for outdoor spaces for informal meetings, gathering spaces or lunch spots. Fareground, the new food court and outdoor space at 111 Congress Ave., is an example of the type of investments building owners are making to cater to a new demographic of workers, rather than putting money into high-end finishes for a lobby or other spaces.
Harsha Kalapala, director of product marketing at zlien, a tech firm with offices near the Capitol, has worked for several tech companies downtown.
“I am very active in the tech community in Austin, so the proximity to so many other good companies helps me catch up with past colleagues and connect with new people every week,” he said.
And although parking downtown is often a challenge, he said, “zlien found a really good provision for employees with free parking just two blocks away.”\
No slowdown on demand
Though downtown rents in the second quarter hit an all-time high of $56.63 a square foot per year, demand for downtown office space remains “torrid,” JLL’s Holford said.
“We wish buildings could get built quickly,” Holford said. “While professional service firms continue to shed space and become more efficient users of space, technology companies are gobbling up huge expanses of space to accommodate growing workforces.”
For Modernize Inc., a tech firm that connects homeowners with contractors, being downtown meshes with the company’s culture.
“Our office vibe mirrors the bustling vibe on Congress Avenue where we are located,” said Christina Wells, director of people operations for the firm. “We are fortunate to have so many great businesses within steps of our front door. In addition to great places to eat, catch a show or enjoy happy hour, the Capitol grounds are a few short blocks away, where teams enjoy lunches in the park on nice days. Wellness is important to our employees, and many people will run around Lady Bird Lake on lunch breaks or head to a spin class or yoga in between meetings.”
The ongoing wave of big tech expansions downtown hasn’t translated to startups being priced out, said Jason Steinberg, brokerage principal at ECR, a commercial real estate services firm.
“We are seeing several large tenants in the downtown market who have relocated to East Austin or plan to in the next year, which provides large blocks of space downtown for smaller tech companies to lease and grow into,” Steinberg said. “Startups want to be near the big tech companies for several reasons, including access to human capital and potential new hires.”
ECR, which leases several office buildings downtown that cater toward creative groups and startups, recently signed several leases with new companies that want to be downtown.
“They may put more bodies in the space to justify the higher office rent to be located downtown, but the positives outweigh the negatives for them,” Steinberg said.
Rick Whiteley, executive director in Austin for Cushman & Wakefield, a commercial real estate services firm, said some companies continue to be willing to pay a premium to be downtown to attract employees.
“I don’t see any kind of negative tipping point being reached in the near future,” Whiteley said. The migration of tech companies just east of downtown provides “more validation” of employers wanting a downtown-area address.
While rents are about 20 percent cheaper on the east side, “that’s not really the driver,” Whiteley said. Not only does East Austin have its own appeal, but a company that was in a high-rise downtown, for example, can boost its profile and have a more significant presence by moving to some of the smaller buildings cropping up on the east side.
Despite downtown having higher rents compared with other parts of the city, “it is critically important for some tech companies to locate downtown to project the right culture for the company and attract the right tenants,” said Erin Morales, senior vice president in Austin with global commercial real estate services firm CBRE.
“It appears downtown will continue to be the epicenter for tech talent,” Morales said. “This will require tech companies to be more strategic in their approach to real estate, as demand does not appear to be slowing down anytime soon.”
As cities such as San Francisco and Seattle have learned, when tech companies take over huge swaths of downtown they bring high-paying jobs and an increased tax base. But there is also a downside.
Both cities are dealing with backlash from non-tech workers and local businesses that are being priced out of the market. Some residents resent the cultural changes that tech has brought, from an influx of upscale restaurants and high-end boutiques to a pervasive techie vibe that has changed the look and feel of downtown.
It’s a challenge Austin also needs to discuss, said Rebecca Melancon, executive director of the Austin Independent Business Alliance, a nonprofit that represents 1,000 locally owned Austin businesses.
“As the tech segment grows especially concentrated in one area like we see happening, there are unintended consequences,” Melancon said. “Culturally it becomes a tech city and not the Austin we have now, which is more diverse than that. If you have a dominant culture that wants the new, the trendy, the high styles, it makes sense that business responds to that and gives their customers what they want.”
But Melancon said the discussion shouldn’t be about pro-growth or no-growth.
“We all want a strong economy, and we all want to see good jobs come here,” she said. “The conversation should be how do we go about saving who we are, and how do we help those getting run over by this?”
In fact, some tech firms are deciding downtown Austin isn’t the right fit for them anymore.
When it came time for real estate technology startup Opcity to find a larger space than its current office at West Cesar Chavez and Lavaca streets, the company was ready to leave downtown, said CEO Ben Rubenstein.
“Parking is a major pain,” he said. “In our garage it was 10 minutes just to get to the ground floor. We plotted on a map where every single person in the company lives, and we mapped out their drive times to different locations in average and peak traffic times.”
Burleson Road in Southeast Austin turned out to be the best location, Rubenstein said. “Their commute times went down, and we have amenities that just don’t exist downtown.”
‘Spreading things out’
Some large tech companies — including HomeAway, Facebook and Indeed — are finding the best real estate model combines downtown space with offices in other parts of town.
When Indeed announced a major expansion plan in May that could add as many as 3,000 workers, the company said it had signed two new leases — one in downtown Austin and one at the Domain. The company will also keep its main campus at the Champion Office Park on North Capital of Texas Highway.
The decision to maintain three sites was made with mobility issues in mind, said Indeed president Chris Hyams. Employees can decide whether to work at the company’s existing downtown office or the Champion location, and will eventually have the Domain option.
“We believe that spreading things out over multiple locations is partially a way to help ease some of the traffic and commute time, both for our employees and also for the city as a whole,” he said.
Indeed economist Daniel Culbertson made the switch from the Champion campus to the company’s downtown office about a year ago and has enjoyed meeting up with former co-workers and acquaintances who work nearby.
“The ability to leave work and walk right to a happy hour or dinner or the gym is great,” Culbertson said. “I’m excited about how downtown is changing and all the new things that will be opening. It’s only going to get better.”