Musk bringing X to Texas capital Austin helps revive city’s stagnant tech dreams

Those who call Austin home say it’s too soon to say whether a relocation of X’s headquarters will include its estimated 1,500 employees or be more of a symbolic gesture by Elon Musk.

By Paulina Cachero

In Austin, the city that dubs itself “Silicon Hills,” a cautious optimism set in this week after Elon Musk declared his social media company X would be relocating its headquarters to the Texas capital.

At its peak during the early days of the pandemic, Austin was seen as America’s next big tech mecca. Companies like Google, Meta Platforms and Salesforce had vowed to expand their footprint in Austin, attracted by its warm climate, low taxes and business-friendly ethos. But, one by one, they reneged on those plans over the past two years, citing the need for less office space amid high borrowing costs. 

Those who call Austin home say it’s too soon to say whether a relocation of X’s headquarters will include its estimated 1,500 employees or be more of a symbolic gesture by Musk. The billionaire’s decision to move yet another one of his companies to Texas is largely political, which could draw the ire of Austin’s staunchly liberal base. But any indication that the worst of the tech retreat is over would be welcome news for the city of nearly 980,000 people. Momentum has stalled in the face of fluctuating business activity and unemployment, and its real estate market has cooled dramatically.

“The substantive impact may be small,” said Jake Wegmann, a University of Texas at Austin professor of regional planning. “But if the HQ ends up in downtown Austin, and there’s a big X sign on a skyscraper, that’s a huge signal that Austin is still attractive for Big Tech.”

Disappointment palpable 

On the ground in Austin, disappointment in the number of tech layoffs and expansions that never occurred is palpable.

The city, which was one of the hottest real estate markets in the pandemic, was completely transformed in anticipation of new workers. But on a late summer afternoon — when one might expect it to be bustling with workers commuting home — the lobbies of several office buildings were eerily quiet. 

Space is up for sublease in both Google and Indeed’s newly completed office towers. Leasing has been a challenge at many new residential and mixed use high-rises — including Sixth and Guadalupe, Austin’s soon-to-be tallest building where Meta was supposed to move. And with the drop off in demand, some projects like Wilson Tower have been dramatically reduced, with the skyscraper downsized from 80 stories to 45, according to the Austin Business Journal.

All told, almost 30 per cent of Austin’s office space was vacant in the second quarter, compared to a national average of 21 per cent, according to commercial real estate firm Cushman & Wakefield. It’s an ominous sign for the many additional buildings slated to be completed by 2026.

“The office market is a mess right now. We overbuilt by so much that there’s a supply and demand imbalance,” said Ignacio de la Morena, an investment associate at commercial real estate developer PlaceMKR.

Austin’s allure

It wasn’t this way just a few years ago. Initially, the rapid adoption of remote work in 2020 was seen as an opportunity for companies to reconsider their geographic locations — and Austin, with its liberal bonafides, quirky culture and zero state income tax, seemed like a natural destination for tech workers in high-cost regions like the San Francisco Bay Area.

But as pandemic restrictions eased, and the Federal Reserve’s tighter monetary policy rattled the tech industry, the expected boom became more of a whimper. 

Last year, for the first time in 20 years, more people left Travis County, where Austin is located, than moved in. Bucking national trends, both rent and home prices have also slipped 7.7 per cent and 18 per cent, respectively, since their peaks in the summer of 2022, data from real estate company Zillow Group show.

Some experts from Zillow see this as a necessary correction from unsustainable levels of growth. They say it keeps Austin looking like a desirable alternative to coastal megacities. And city leaders point to job growth in industries other than tech as a healthy diversification of the region’s economy.

“What we're seeing now in the job market and the economy is a stabilization not a dip,” said Stacy Schmitt, a senior vice president for Opportunity Austin, which leads the city’s economic development efforts.

But that’s of little comfort to those who flocked to the city at its peak. When companies leave a city or fail to follow through on moving plans, there can be a reduction in the city’s economic output and tax revenue. Vacant properties can become a financial burden, and the perception of instability could deter others from relocating to the area.

Oracle Corp. added to concerns Austin’s star may be dimming, when founder Larry Ellison said in April the company would be moving its global headquarters to Nashville from Austin after less than four years.

As for X, previously known as Twitter, few details are known about Musk’s plans to relocate its headquarters from San Francisco. Musk made the announcement — with just 29 characters on X — after saying California’s Democratic politics were driving him to move the headquarters of his aerospace company SpaceX to its Boca Chica location in Texas.

One reason Musk is thought to have picked Austin for X is because that’s where he headquartered Tesla in 2021 after building a Gigafactory there. Yet, few of Tesla’s employees have actually moved to Austin and the carmaker maintains a big presence in the Bay Area.

The same could be true of X, leading some to say it’s time to shift the city’s focus to growing an Austin-founded tech powerhouse that draws talent to the city. To date, the best known Austin-founded tech companies are Dell Technologies and Indeed.

“What is the big company that is founded in Austin that helps it rival other tech hubs?” asked Heather Doshay, partner at VC firm SignalFire. “Austin has already been cemented as a tech hub. They’re just not a tech hub on the level of Seattle or San Francisco.”