Austin Office Market for Q1 2019

Austin Office Market for Q1 2019 | Summary

How did the Austin office market fair for the first quarter of 2019?  Positive signs for the first quarter of 2019 are still in play with vacancy rates dropping below 10%. Lease rates have risen to historic highs with an additional 5M square feet of office space added on.

  • Large tenants are driving the demand for the most part
  • Predictions of office occupancy are good for the rest of 2019
  • OPEX (operational expenses) have increased along with lease rates increasing $0.12 cents psf per month
  • Full Service rates are in the high $30’s

Austin employment grew close to 4% for the first quarter of 2019, however this is lower than the long term growth of 6%.  Unemployment still remains relatively low and below the national average of 3.8%

 

Highest Vacancy areas for office spaceAustin Office market

Here is a quick snapshot of the highest vacancy areas in the Austin market, for more detailed information visit our vacancy data page.

  • Northeast Austin – which includes Round Rock Overall vacancy rates are 17-18%
  • Southeast Austin – 15%

 

Office Lease Rate Highs (per year)

  • Downtown Austin remains the highest cost area to lease office space, almost $50.00/psf
  • East Austin comes in second at $43 psf
  • Northwest Austin is third at $37 psf

For more detailed information on current market office lease rates, you can visit our landing pages for specific square footage offices in the Austin Area.

Improvements White Box Space

Improvements | White Box Space

What is a white box space? A question like this may come up from a tenant that is looking to occupy a retail space or office space in Austin. White box is defined as an improved space that is “vanilla” , it really does not have any amenities or tenant specific improvements to the premises. Let’s think of a space that is completely unfinished. Minimum attributes do exist in a white box space such as

  • Electrical
  • Drywall- Sheetrock – painted white
  • Plumbing- restroom areas
  • HVAC – typical for office building space
  • Duct work-sometimes

Every tenant has their own look, just like you have a your own look when it comes to the way you dress. A white box allows the tenant to start with a blank slate and renovate it with a new look. Permitting does come into play depending on what the tenant wants , it could include many things such as : Relocation of HVAC systems, lighting , sprinkler systems, exit doors etc..

 

Costs of Improvements for White BoxWhite Box and Tenant improvements

Costs of improvements seem to be a grey area for most people and it is usually under-estimated. Trying to provide some clarity on costs of improvements even for white box solutions can be a bit tricky. Here are some guidelines for costs of improvements. 

  • HVAC unit replacements depending on the tonnage? $5000-$8000 per unit- this is typically for retail if your unit goes out while you are leasing the space
  •  Drywall $5 to $10 per linear foot
  • Drop ceiling $4 a square foot
  • Lighting $4 a square foot
  • Restrooms $8000-$15,000 (if it is a new restroom)
  • Flooring $4 a square foot
  •  Architect design $3 a square foot
  • MEP- mechanical electrical plumbing $1.50 a square foot (upper range)
  • Management fees for construction if you want it – 4-5% of the construction costs
  •  Permitting costs : Demo permit $250 where as a full building permit is $1500
  •  ADA review is require on projects larger than $50,000

Texas Department of licensing and registration requirements exist for projects as well and will cost up to $1,500.00

 

 

Austin Office Market -End of Year 2018

Austin Office Market | End of Year 2018

 

During the first half of 2018, the Austin office market was relatively flat.  Towards the end of 2018, the office market actually made a rebound. Austin vacancy rates did go below 10% , lower vacancies translates to higher lease rates.  New construction commenced for the office market in 2018 due to the steady demand.  For 5 straight years Austin’s office market has had over 1M square feet of space occupied.

  • Vacancy rates: Q3 10.2% , Q4 9.6% (Austin Metro Area)
  • Highest vacancies for Q4 2018: Round Rock , Northeast and Southeast Austin

Impact on Expenses for the Office Market and Lease Rate

Occupancy in Austin

The Office market will see continued pressure on expenses moving into the near future. There was a $0.20 cent plus increase in expenses from the third quarter of 2018 moving into the fourth quarter of 2018. Tenant demand remains solid moving into 2019 with forecasts calling for over 8 million square feet of demand. Lease rates for office space moved upward to $36.00 gross per square foot per year.  Gross rates are defined as the base lease rate plus NNN expenses included. Demand consisted of other types of businesses followed by technology type companies.

Round Rock Incentives

Round Rock Incentives

Summary taken from Round Rock Chamber of Commerce

The City of Round Rock and the Round Rock Chamber are offering customized incentive packages for relocation and expansion of businesses. Assistance may include tax abatements, waivers of fees, job training , and fast permitting. Here is a summary of the incentives on the table:

Tax AbatementsAustin Growth Population

Tax abatements are incentives being offered by Round Rock Texas for new businesses and existing expansions, included in this are personal property tax abatements associated with real property. If your business is making improvements to a facility or adding new equipment that add tax value those improvements may be considered for an abatement.

Financing and Grants Possible

Round Rock has a chapter 380 government code that provides authority to grant a loan of city funds to promote economic development. A 380 grant would be in the form of a municipal sales or property tax rebate. Performance based cash grants can be offered on job creation, capital investments and other factors as well.

Round Rock Incentives with Permitting and Job Training

Permitting incentives to fast track a project exist. Local officials can customize a development time table for businesses requiring and aggressive build schedule. Round Rock touts this as a distinct advantage versus their neighboring towns. The Round Rock Chamber can assist companies locating or expanding in Round Rock by securing state-provided job training. The Texas Workforce Commission offers the Skills Development Fund and other training to finance customized job training provided by public community and technical colleges. Please see the Job Training Resources page for detailed information.

For help with relocation and expansions, Shire Commercial has been helping clients since 2004 to locate their businesses.


Gross and Net Leases

Gross and Net Leases for Office Space

No matter which type of business is reflected, the commercial real estate lease is a binding agreement created to defined the terms of occupancy for a tenant. Bottom line, most commercial real estate leases whether they are gross or net leases are drafted to offload as much exposure from the landlord onto the tenant as much as possible. It is for that reason that a tenant should understand that searching and negotiating a lease thru a brokerage like Shire Commercial, is not the whole enchilada.  A seasoned broker will offer you as a Client more services that just finding you a space, anybody can do that.  On top of lease reviews, a good broker who represents your interests will point out potential issues in a lease and recommend that you consult a legal authority for more detailed review.

Gross vs Net Leases Commercial Real Estate Broker in Austin

Roughly speaking, there are 2 main types of leases for office space in the Austin area, they are gross and net leases. While both may represent some risks for tenants, the gross lease offers the biggest chance for the lease language to hide some pitfalls . Why? This is because Net leases are written to have the tenant responsible for pay for property expenses beyond rent  to include taxes, insurance and maintenance , almost as if you as the tenant own the property.  A Gross lease on the other hand detail out the tenant expense beyond rent in details that need some attention right away. These attentions to detail include: units of measurement being used and calendar years being referenced within a lease.  Having a firm grasp of the details within a Gross lease versus a Net lease is important for a tenant to understand.

Austin Office Report Q3 2018

Austin Office Report Q3 2018

Lets take a quick snapshot overview of the Austin Office Report for Q3 2018,  activity compared to the past couple years is slowing a bit. Vacancies for office space properties have remained in the 9.5-10.5 % range for the 2018 year and moving into Q4 are hovering in at 10.2%.  Lease rates on average have moved down a bit but not significantly and are still coming in at over $35 per square foot per year as an all in (Full service gross) rate.  Near term the forecast is continued demand and occupancy consistency.  Tenants looking to lease office space according to our Austin Office Report should expect operating expenses to be higher overall , recent forecasts show an increase of approximately 0.20 cents per square foot per year.  Subleasing activity is an indicator of consolidation and or a potential slowing in the economy, we have seen more office subleases come onto the market in the past quarter.  Subleases can provide an advantage to start up companies or businesses that need a shorter term lease, the downside to subleasing is that there are no tenant improvements typically.

Development and Construction

The Austin office report for Q3 2018, does show year to date activity to be slower than previous years.  Approximately 200,000 square feet of new construction has commenced in Q3 2018 which brings the current development construction to over 4M square feet of additional space.