News Summary
Austin’s office market is currently grappling with a record high vacancy rate of 27.7%, tied with San Francisco for the highest in the nation. This significant rise, attributed to a construction boom and changing business needs, has landlords offering competitive deals to attract tenants. Despite these challenges, the market shows potential with ongoing projects like The Republic tower and a trend towards mixed-use developments that integrate residential and office spaces for a more efficient utilization of space.
Austin Office Market Faces Record High Vacancy Rates Amid Continued Development
Austin has recorded a record high office vacancy rate of 27.7%, which ties with San Francisco as the highest in the nation. This vacancy rate represents an alarming increase of 710 basis points year-over-year, marking the steepest rise among major U.S. office markets.
As of now, approximately 4.4 million square feet of office space are currently under construction in the Austin area, yet around 2 million square feet remains unleased. According to CoStar Senior Market Analyst Israel Linares, the current office vacancy rate of 16.8% puts Austin among the highest in the country. This surge in vacancy rates is largely attributed to a substantial construction boom that began during the hiring surge of 2021 and early 2022.
To adjust for these high vacancy rates, landlords in Austin may offer competitive deals to attract tenants. These incentives could include reduced lease terms and additional concessions. Despite the ongoing challenges, the Downtown Austin Alliance has signed over 250 leases since last year, although the average space taken by businesses has decreased, with tenants now averaging three to five floors rather than nine to ten.
Trends in Building Usage
There is a noticeable shift in building usage in downtown Austin, which is evolving toward mixed-use developments that incorporate both residential and hotel spaces. Since 2020, approximately 14 million square feet of new office space have been delivered, accounting for 12.3% of total inventory in the market. This indicates a sustained interest in developing new office spaces even amid the current high vacancy challenges.
While the pace of new construction has cooled, with only 1.3 million square feet initiated since early 2023, Austin still boasts a significant amount of ongoing projects. Notable among these is The Republic, a 48-story office tower expected to be completed soon, providing 833,000 square feet of office space, of which around 50% is currently leased as of late 2024. Another major project, the Waterline, will be a mixed-use tower that is set to open in 2026, projected to become the tallest tower in Texas.
Job Growth and Market Trends
Despite the high vacancy rates, Austin posted year-over-year job growth across all office-using sectors. However, the information sector experienced a minor decline of 0.69%. The average price per square foot for office space in Austin has recently dropped from $379 to $287, although asking rents remain robust at $46.75 per square foot, which is the second-highest in the region after Miami.
Looking ahead, the local office footprint is projected to expand by 12.1%, driven primarily by new developments and planned projects. This expansion comes as a stark contrast to the national average office vacancy increase of 11% over the last twelve months. Notably, other major southern markets like Washington, D.C., and Miami have demonstrated resilience despite the challenges faced by the office space sector.
In summary, while Austin grapples with unprecedented office vacancy rates amid a development boom and changing tenant preferences, the market is still expected to grow in certain sectors and adapt to the evolving landscape of commercial real estate.
Deeper Dive: News & Info About This Topic
- CommercialCafe: National Office Report
- KXAN: Austin Office Vacancy Rate at an All-Time High
- Silicon Hills News: Austin Office Market Faces Record Vacancy Rates
- Wikipedia: Austin, Texas
- Encyclopedia Britannica: Austin
Author: STAFF HERE GEORGETOWN
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