Austin 'in the sweet spot' to keep growing as a tech hub, industry experts say (2024)

The area's economy is likely to face challenges in 2023, but it's a safe bet that Austin's status as a hub for the high-tech sector will keep growing, industry experts say.

The region's tech sector has boomed in recent years, with numerous companies moving in since the start of the coronavirus pandemic in early 2020 — including an increasing spectrum of companies tied to billionaire Elon Musk.

Even amid fears of a looming recession and the loss of a major tax break tool that has been used to attract big projects — such as Samsung’s $17 billion factory under construction in Taylor and Tesla’s $1.1 billion electric vehicle plant in southeastern Travis County — few expect the trend to stop or reverse.

“We’ve seen so many tech companies big and small that have moved or plan to move (to the Austin area) because the engineering talent and success is bringing more success,” said Dan Ives, a tech industry analyst who says momentum is building for Austin to become "Silicon Valley 2.0."

Mapping Musklandia:Mapping Musklandia: A guide to Elon Musk-related activity in the Austin area

Still, Ives and other industry experts aren't predicting the Austin area will emerge unscathed from a potential nationwide economic downturn in 2023, particularly if the tech sector is hit inordinately hard. Already, some big-name global tech companies with Austin operations, such as Facebook parent Meta, have had layoffs.

But the region's reputation and success in attracting new tech employers and startups — and its "endorsem*nt" by Musk, in terms of his multiple operations here — should help it weather the storm, they said.

Musk, the CEO of Tesla, moved the automaker's headquarters here in 2021, and he also has opened offices in the region for many of his other companies, including his tunneling company the Boring Company and his neurotechnology company Neuralink. He heads SpaceX as well and has located some of its operations in the Austin area.

"I think Austin is still in the early innings of more companies looking towards Austin as either a second hub or potential headquarters,” Ives said. “There's a lot of employees that have or will start to move from Silicon Valley to Austin.”

More:How Austin grew into a tech 'superstar' during pandemic

Austin — home to Samsung and Tesla facilities — is 'in the sweet spot'

Industry data would seem to support that view.

A December report from career platform Dice found that Texas and Austin are key locations for the tech sector and that demand for tech talent remains high here despite industry layoffs.

Texas has five cities on Dice's list of the top 25 U.S. tech cities — Austin, Dallas, Houston, Plano and San Antonio. Statewide, the number of tech-related job postings still lags California, but the gap has narrowed and Texas had a 22% increase in total postings from January to October this year, compared with the same period in 2021.

“Across the board, you're seeing growth in Texas," said Art Zeile, CEO of Dice. "There is a net migration of technology workers specifically from the coastal cities that have always been the dominant tech hubs — places like Seattle, San Francisco, clearly New York City and Washington, D.C. — to the middle of the country."

Zeile said cities such as Austin, Charlotte and Atlanta, where people can earn good wages and work on high-end projects without sacrificing quality of life, are benefiting from the trend.

"All those things really line up" for Austin, he said. "Austin is, in my opinion, in the sweet spot."

The city had the fifth-highest number of job postings of all tech cities in 2022, according to the Dice report, up 9.6% from 2021. In May alone, Austin had more than 7,000 tech job postings.

Thom Singer, CEO of the Austin Technology Council, said the region and its tech scene have made important strides to reach national prominence.

“We have a very diverse ecosystem now," Singer said. “I think Austin's going to be on the short list (for tech companies looking to expand or relocate) for many years to come. I think that we've earned that place."

But he warned that Austin can’t take its status for granted.

“More cities are coming up into the fray" to try to attract tech jobs, he said. "We can't rest on the laurels of the past 10 years. We have to get aggressive, and we have to know what types of companies we want to invite in."

Still, he described the Austin area as "poised for more greatness," based on an expanding ecosystem of tech companies, investors and tech-focused law and accounting firms here, as well as a pipeline of educated workers graduating from local universities and a generally favorable year-round climate.

More:As U.S. recession fears loom, what does that mean for Austin's job market?

'Something special happening here'

Austin’s booming tech-centric manufacturing industry also should see continued growth for many of the same reasons, said Ed Latson, CEO of the Austin Regional Manufacturers Association.

Automaker Tesla is scaling up and is expected to soon have10,000 workers at its big Travis County electric vehicle factory. In Taylor, Samsung's new chip plant is forecast to be operational in 2024, and the company has said it might build even more factories in the region over the coming years.

Latson credited a solid pipeline of educated workers and a good quality of life for the region's success. He also cited proximity to key customers as continual draws, as well as the ability to quickly distribute products throughout the United States and Mexico from the Austin area.

"There's something special happening here, and I'm excited to see how that manifests and takes off in 2023," he said.

The recently approved federal CHIPS Act, signed into law by President Joe Biden in August and aimed at encouraging semiconductor manufacturing in the United States, also is expected to benefit the region. Latson said companies looking to move to Austin or expand operations here likely will be able to tap funding and tax credits available through the CHIPS Act.

More:US military official says Austin is crucial to building Army of the future. Here's how

Concern about loss of tax breaks

Still, a potential drawback for the region's tech scene in 2023 could be the loss of the state's Chapter 313 incentives program, which expired at the end of 2022.

The program, named after a section of the tax code, empowered school districts to offer significant property tax breaks in exchange for big-ticket developments within their boundaries. Existing Chapter 313 agreements, such as those involving Tesla and Samsung, won't be affected by its expiration, but new deals can't be struck

Singer and other Texas business advocates and economic development officials are urging state lawmakers to enact a replacement for the Chapter 313 program during the upcoming legislative session that begins Jan. 10. Otherwise, they say, the state is likely to lose out on job-creating corporate expansion projects and relocations to regions that offer lucrative incentives.

“The Legislature needs to do something, whether they keep (Chapter) 313 or they pass something else, that allows municipalities to be able to attract these companies," Singer said. "If other cities (nationally and globally) are doing it — if other cities are offering packages to these companies to relocate — we have to be competitive.”

Latson said he'd also like to see a replacement incentives program. But he said Austin's manufacturing industry is poised for growth regardless.

"From an expansion and a top-line growth perspective, the pace might have slowed down a little bit, but the projections are still really good," he said. "I’m getting encouraging news from a lot of people in the space that they're in a good position and expecting a pretty healthy year in 2023, even if it's not at the same pace that it was in 2022.”

If there is a slowdown, it won't be because of a lack of workers, Latson said.

“I'm very optimistic that the workforce is there," Latson said. "We need to continue working in a partnership to build talent pipelines, but if you're a manufacturing company and you're operating in Central Texas, I think you feel pretty safe that you're going to be able to get the workers you need to succeed.”

But despite the strong demand for manufacturing, layoffs have hit some other sectors of the tech industry. Companies with significant operations in Austin, including Meta and Tesla, have cut workers in recent months, and some have reduced costs in other ways.

Ives said the upshot might be a slowdown for Austin in the near term. Once the national economy ticks up again, however, he expects Austin to come out a winner, he said.

“In this near-term recessionary environment, companies are rationalizing rather than expanding so (growth) is definitely taking a pause,” Ives said. “But I view it as more of a near-term pause. I think the trend is clear in terms of Austin becoming the new Silicon Valley. The cachet with Austin — the 512 area code — has changed dramatically, not just within the technology world but I think Wall Street as well.”

Roger Kay, a tech industry analyst, agreed that Austin is well-positioned for the future despite a potential national economic downturn.

Austin "has got a bit of that sort of hub magnet quality,” Kay said. “There is a kind of youthful quality to Austin, which is important. There's a lot of openness to do things" for established companies and startups alike.