Which city will be the next Silicon Valley?



As witnessed in Silicon Valley over the last two decades, Tech industry growth impacts housing values and creates a profitable environment for real estate investment. But while Silicon Valley remains the premier Tech center in this country, California’s real estate scene is over saturated.

silicon-valley

photo credit: DSC_1969.jpg via photopin (license)

 

Last quarter, Coldwell Banker reported that Los Altos, CA, in the heart of Silicon Valley, had become the most expensive market in the U.S. with a median sale price of $2.3 million. This has also spiked rental costs, which commonly exceed $2,000 per month for a one-bedroom.

With record-high prices in Silicon Valley, opportunities to profit from real estate are slim. There are, however, emerging Tech hubs with characteristics similar to Silicon Valley before its real estate boom including:

  • Relatively low housing costs
  • Low unemployment rates
  • Median Tech salaries higher than the median salary for the city’s total workforce
  • The presence of major Tech companies
  • Venture capital funding to spawn new businesses

These Tech hubs – Austin, Dallas and Seattle – are prime environments for real estate investment. Here’s a closer look at them:

Austin, TX

Arguably the most attractive of these Tech hubs has been Austin, which has a young, educated population and a large VC presence, along with a burgeoning restaurant and music scene. Home to Dell, Austin continues to be popular among venture capitalists boasting 17 companies on the Inc. 5000 list including one of the country’s most promising companies, mobile app developer Phunware (82nd). As for job growth, the Austin Technology Council predicts that 9,000 new tech jobs will be created by 2017, a big reason why Austin ranks second on Forbes list of Best U.S. Cities for Future Job Growth.

The real estate outlook is also very positive. In October 2014, the Urban Land Institute (ULI) and PricewaterhouseCoopers, ranked Austin second on the list of “U.S. Markets to Watch: Overall Real Estate Prospects.” The report, Emerging Trends in Real Estate 2015, says Austin, which has a median real estate purchase price of $216K, is among the leaders in urban growth (8.6 percent). The report also ranks Austin as the number one market for homebuilding, second for investment and fourth for development.

Affordability is also an attraction for Austin investors. According to the ULI report, Austin’s “Affordability Index,” which compares the percentage of the median price of a home to the median income for the market, stands at 154.24. The report also points out there is strong involvement among local owners and developers, indicating a substantial pipeline of real estate investment opportunities in 2015.

Dallas, TX

Dallas has also grabbed attention, having been named by SmartAsset as the country’s fourth best Tech city in which to work. Known as the home of Texas Instruments and sports and Tech mogul Mark Cuban of Shark Tank fame, Dallas has its share of fast-growing VC-funded companies with IT Services provider CPSG Partners (24) and real estate CRM developer Think Tech Labs (344) among its 14 entries on the Inc. 5000.

Its Tech attraction and low median real estate purchase price ($197K) translate into one of the country’s highest job growth rates (4.1 percent). With the job growth rate expected to continue, the ULI report names Dallas the fifth top U.S. market for overall real estate prospects. Like Austin, Dallas’ strength comes in homebuilding, where it ranked third, while placing in the top 10 for investment (9) and development (8). In terms of affordability, Dallas exceeds even Austin with a ULI Affordability Index rating of 184.91. The expectation is investor demand will remain high in 2015 thanks to a strong local economy supported by dynamic local development.

Seattle, WA

Think Seattle, you automatically think rain, great coffee and Tech titans Microsoft and Amazon, which continue attracting Tech talent to Seattle. This means lots of jobs and lots of top Tech talent to start their own companies. According to Startup Seattle, VC investment in IT companies in 2014 nearly doubled from 2013 as $804 million was invested in 139 deals, including $71 million of Series G funding for Redfin. Other VC-backed companies, such as SEO tracking software developer Moz, have also been successful.

Because of Tech, Seattle is the fastest growing of the country’s 50 most populous cities (6.9 percent between 2010 and 2013). Most attractive to investors, however, is the steady climb in median real estate prices, which have grown 32 percent over the last three years to $440K. While much higher than Dallas and Austin, because median income is also higher, Seattle’s Affordability Index still comes in at a respectable 98. This contributes to Seattle being eighth on ULI’s list of “Overall Real Estate Prospects,” finishing strong in investment (4th) and development (3rd).

Seattle has become one of the country’s top capital destinations outside the core major markets like New York City, Los Angeles and Boston, and therefore attracts not only local investors, but also institutional investors, to its economy and investor demand should continue to rise in 2015.

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