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.

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. 

 

Austin Office Market Q2 2018

Austin Office Market Q2 2018

Austin’s office market for Q2 2018 remained flat for the first half of the year compared with 2017. Although, occupancy has not changed much the vacancy rates have moved upwards  overall at around 10%.  We are seeing a slowing of occupancy taking place and more sub-leasing activity, this tends to be a sign of a consolidation or a slowing of activity.  Vacancy rates can be skewed however due to new deliveries of inventory which encompasses 6 new office building properties being delivered.  Also new construction shall provide an additional 800,000SF of office space coming on the market.

Austin Office Market Operational Costs

In addition to increasing lease rates, operational costs are on the increase as well. Overall operational costs have increased $0.44 cents per square foot to an average over $10 per square foot per year for office properties.  NNN asking rates increased overall $0.41 cents per square foot from the 1st quarter to the 2nd quarter of 2018.  Annual gross rates overall are at a historical high of $35.84 per square foot per year. Job grown has expanded at 3% annualized in Q2 2018.  Asking rents comparisons over the past 3 years are as follows:

2015 $31.81  

2016 $34.83

2017 $34.39

2018 $35.84

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 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.