Austin Office Market Q1 2018

Austin Office Market Q1 2018  | Summary and Report

Austin’s office market is staying within a specific lease rate range with some major increases in certain sub-markets based on our vacancy reporting. Vacancy has increased to close to 10% coming up from the 8% range in the last quarter for 2017.  2017 came in at a 16 year low for vacancies at 8.8%.   Lots of new development are still being constructed with forecasts telling us an additional 700,000SF of new office projects within the Austin Market.

OPEX Costs  (NNN) and Office Market movement

Operational costs are still on the up-rise averaging an up tick of $0.17 per square foot per month. Office market movement in Austin for Class A still remains robust with increased leasing rates especially in Downtown Austin.  Full service gross leasing rates for Class B offices are coming in at just under $35 per square foot per year which is a new high for the Austin office market. Austin employment is still moving up going into the 2nd quarter of 2018.

Lease Rate Comparisons across various sub-markets

Austin Commercial Office Space for Lease 5,000-10,0000+SF

Downtown Austin in 2012 : $36.08 per square foot  compared to 2018 $46.57 per square foot per year

Northwest Austin in 2012: $25.83 per square foot compared to 2018 $35.25 per square foot per year

Round Rock TX  in 2012:  $21.00 per square foot compared to 2018 $24.00 per square foot per year

Southwest Austin in 2012: $26.80 per square foot compared to 2018 $35.29 per square foot per year


Austin Office Market | Q4 2017

Austin Office Market | Q4 2017 | Summary Report

2017 was a strong year overall for the Austin office market , although the last quarter was met with negative occupancy (absorption). Vacancy rates were at a 16 year low for the Austin office market as well.  New development is an additional 600,000SF of space with over 2M square feet of new office space available.  During the last quarter occupancy was slower  compared to the previous 3 quarters. The majority of leases were with technology companies at over 30% of the leases done , next were financial services.  OPEX costs rose approx 86 cents per square foot which translates to an Austin average of over $9.50 per square foot. 

Offsetting operational cost increases | Austin Office Market Q4 2017

Landlords were seen lowering their base lease rates to an average of approx $24.00 down from $25 in Q3 to offset the higher operating expenses. Citywide however the full service gross rate rose approx $0.07 per sf compared with the previous quarter.  Unemployment in Austin has fallen to 2.6% which is the lowest since the 90’s. Vacancy rates are as follows for the last quarter of 2017:

  •  CBD 7.9%
  •  Northwest 8.6
  •  Far NW 6.0
  • North Central 7.7                                               Austin , TX Lease Terminology      
  • Round Rock 8.3
  •  East 7.4
  •  South 12
  • Southwest 11

Sublease activity has increased as well over the past 3 months, which can show consolidation or potential expansion into new spaces, however typically the sublease activity does not show expansion as much as it does consolidations.  We do expect the office market to somewhat flat despite some marketing forecasts of it being busy, as an example we have seen sublease listings last for 6 months with no takers.

Austin Commercial Buildings

Austin Commercial Buildings

Summary of Austin’s commercial buildings and activity for 2017 (portions obtained from Co-Star )

Austin is going thru expansions for commercial buildings especially in the Downtown area.  Austin’s downtown commercial building leasing rates are up +30% compared with per-recession lows. Vacancies remain low as well with only approx 25,000SF of space avail for lease south of the Capitol building.  Pre-leasing activity remains strong for commercial buildings most of the new construction buildings deliver leased.  Over 2M square feet has been delivered to the Austin market since 2012.

Sales of Austin commercial buildings have hit highs , as high as $665 per square foot at a 5.9 cap rate. The specific Austin commercial building that sold for these numbers had new construction going for it as well as the average remaining lease terms were about 6 years and were to high credit tenants.Cap rates for commercial property

Unemployment rates in Austin stay Low

Another key factor is the robust population growth and how unemployment in the Austin area , for Q2 it hovered around 3.3% and moving into July of 2017, unemployment went below 3% . Business expansion was up to 5.7% . Key transportation issues and affordability has cropped up in the Austin area as it continues to grow. Vacancy rates have fallen to lows of not seen since the 2nd quarter of 2001.  For new construction moving into the third quarter, the sub-markets that saw the highest delivered new construction were East and Northwest Austin.

Austin Commercial Leasing

Austin Commercial Leasing

This is a summary of Austin’s commercial leasing market for office space moving into the 3rd Quarter of 2017.  Continuing occupancy has been the theme for some time now in Austin. The current vacancy rates are now at a 16  year low.  Tenant demand remained strong for the 3rd quarter with approx 1M square feet of office space being leased for 2017. Construction wise for offices is expanding with approx an extra 2M square feet under construction . Austin commercial leasing for only 2 sub-markets was low which was Round Rock and East Austin.

Sectors producing the demandAustin office market Q2 2016

Austin’s commercial leasing for offices was lead by engineering and tech firms which accounted for more than 1/3 of the leases executed. Vacancy rates are not sitting at 8.8% which is down 50 points, the lowest since the second quarter of 2001.  Current OPEX costs have risen,up $0.30 cents per sf per year while NNN lease rates moved downward by $0.90 cents per square foot per year. The market is being supported by a very low un-employment rate coming in at 2.8% . Tenants can expect more of the same in the near term with rates staying static , most landlords are looking for minimums of 3+ year term commitments. Contact Shire Commercial to help you find a suitable office space , specialists in Austin Commercial Leasing.

Austin Office Market Q2 2017

Austin Office Market Update Q 2 2017

There are always differing opinions as wide as there are people in the CRE market , brokers, agents and owners. Austin has been on a very long run approximately 8 years and some say this cannot sustain itself and some say it will continue. Truthfully, nobody really knows the answer. If we take historical into account every long up-cycle has an eventual down cycle and vice versa that is the law of the universe.

So where is the Austin office market for Q2 2017? Currently, the news for the most demand seems to be Downtown Austin and the East Side. This sub-market is expected to be the leader as far as momentum however, lease rates are expected not to change too much. There are properties to be delivered in 2017 that will hold the lease rates in check unless the spaces are pre-leased at a fast rate then the formula would change.
Nine office buildings has been completed in Q2 2017 in Downtown Austin with an 80% pre-leased occupancy. Citywide leasing averages increased approx $0.28 cents per sf per yr to $34.02 as an average for the downtown Austin office market.

Among the best tech cities to live in, Austin still came in at number 1 against cities like San Francisco, New York, Boston and Seattle. As long as the media touts Austin as a number one city, the population growth will most likely continue regardless of growing traffic congestion and higher taxes and expensive housing relative to the rest of the state.

Suburban Office Market
The suburban market vacancy rates are a bit higher approx +3% and demand remains somewhat steady, however we are seeing a lot more sublease listings coming onto the market which shows consolidations, changes to locations preferences or slow-downs in Austin office demand. Class A Office space is still leasing at a flat to slight increases.