Austin

Q3 2014 | Austin Office | Market Report

Office vacancy rates decreased by 4.0% between quarters as new tenants lease space in Austin’s CBD. Citywide absorption reached 728,703 SF in the Q3 2014 compared to 99,000 in Q2 2014, making this by far the strongest quarter for Austin’s office market this year.

Although there were no deliveries in Q3 2014, nearly 2.9 million SF of office space is currently under construction. Some of these buildings include the Colorado Tower, already 95% preleased, IBC Bank Plaza, which is 90% preleased, and finally 311 Bowie Street where Whole Foods has preleased 40,000 SF of office space.

The citywide average rental rate increased 0.9% from $27.70 per SF to $28.20 per SF over the quarter and 6.2% from $26.56 per SF to $28.20 per SF over the year. The average CBD rental rate increased to $39.34 from $37.90 last quarter, and the average suburban rental rate increased slightly from $26.02 to $26.43.

According to the Texas Workforce Commission, the Texas economy and workers across all major industries continue to perform at a record pace. Austin’s unemployment rate fell to 3.9% from 4.9% over the year.

The continued construction paired with high demand for office space both inside the CBD and out, proves that Austin’s market is stronger than ever. Competition for downtown office space is at an all time high as we see a creative, well-educated workforce infiltrate the city and continue to drive occupancy rates up.

  

Absorption, New Supply & Vacancy Rates


  

Vacancy & Availability

Austin’s citywide vacancy rate decreased 100 basis points from 10.7% to 9.7% between quarters and vacancy decreased across both the CBD and suburban markets. With the influx of growing companies into Austin’s CBD, others are forced out of the city and into suburbs, causing vacancy rates to decrease across the board. Between quarters, the average suburban vacancy rate decreased slightly from 10.5% last quarter to 10.1% in Q3. The average CBD vacancy rate saw an even greater drop this quarter from 11.3% to just 8.4%.

The average CBD Class A vacancy rate decreased 390 basis points between quarters from 16.0% to 12.1%, and the average CBD Class B vacancy rate decreased 190 basis points from 5.0% to 3.1%. The average suburban Class A vacancy rate decreased 40 basis points from 10.5% to 10.1% between quarters, and the average suburban Class B vacancy rate fell 80 basis points from 11.5% to 10.7% between quarters.

Absorption & Demand

Austin’s office market posted 728,703 SF of positive net absorption in Q3 2014 making this the most successful quarter in almost two years.

The CBD submarket posted the largest gain, with 279,332 SF of positive net absorption, followed by the Southwest submarket, posting 196,082 SF of positive net absorption in contrast to the previous quarter where the Southwest submarket saw a negative net absorption of 89,623 SF.

Demand for office space remains strong even as office building construction continues. Of the 25 buildings currently under construction citywide, 38.6% of that office inventory is already preleased.

Rental Rates

The citywide average rental rate increased slightly from $27.70 per SF to $28.20 per SF over the quarter and increased 6.2% from $26.56 per SF to $28.20 per SF over the year. Average citywide Class A rents increased from $32.47 to $32.99 and Class B rents increased from $22.76 to $22.91 over the quarter.

The Class A average rental rate in the CBD increased 4.6% from $39.76 per SF to $41.57 per SF between quarters, while the suburban Class A average rental rate increased only slightly from $30.49 per SF to $30.81 per SF. The average Class B rental rate in the CBD remained unchanged at $33.03 per SF, while the average suburban Class B rental rate increased slightly between quarters. 

Quoted Gross Rental Rates for Existing Top Performing Office Buildings

BUILDING NAME

ADDRESS

SUB  MARKET

RBA (SF)

YEAR BUILT

LEASED

AVAIL. SF

RENT ($/SF)

OWNER

Frost Bank Tower

401 Congress Ave

CBD

535,078

2003

93.7%

48,596

$50.97

Parkway Properties Inc.

One Congress Plaza

200 Cesar Chavez
CBD
 518,385  1987  74.1% 139,990  $43.07 Parkway Properties Inc.

One American Center

600 Congress Ave.

CBD

503,951

1984

96.2%

93,160

$42.44

Parkway Properties Inc.

300 West Sixth

300 W. 6th St.

CBD

454,225

2001

95.5%

20,311

$49.17

Parkway Properties Inc.

301 Congress
301 Congress Ave.
CBD
 418,338  1986  94.0%  26,974  $45.32 National Office Partners, LP
100 Congress
100 Congress Ave.
CBD
 411,536  1987  87.0%  52,383  $47.36 Metlife, Inc.
San Jacinto Center
98 San Jacinto Blvd.
CBD  410,248  1987 81.0%  79,642  $42.89 Parkway Properties, Inc.
Northview Business Center
9001 N. I-35
Northeast
 262,067  1973  82.0%  47,584  $19.64 Trigate Capital, LLC

UFCU Plaza

8303 N. MoPac Expy

Central

246,869

1987

90.0%

24,721

$31.00

University Federal Credit Union

University Park

3300 N. Interstate 35

Central

206,657

2009

89.0%

51,863

$34.65

Spear Street Capital GP LLC

Two Barton Skyway
1601 S. MoPac Expy
South
 195,639  2000  83.9%  40,399  $37.62 DRA Advisors, LLC

Research Park Plaza - Bldg IV

12301 Research Blvd.

Northwest

184,159

2001

98.4%

99,789

$35.00

Union Investment Real Estate GmbH

Note: Avail. SF includes direct and sublet space.
Source: CoStar Propertyand Austin Business Journal


Leasing Activity

Austin’s office leasing activity reached 1.0M SF in Q3 2014 with transactions including renewals, expansions, subleases, and pre-leases in buildings currently under construction.

Q3 2014 Top Transactions

BUILDING NAME/ADDRESS

SUB-MARKET

SF TENANT LEASE DATE

Aspen Lake II

Far Northwest
68,500 Q2eBanking, Inc.4
Jul-14
Seaholm Power Plant
CBD
35,000 Under Armour4
Jul-14
River Place Corporate Park Bldg III
Northwest
32,945 Acxiom
Jul-14
One American Center
CBD
32,674 Main Street Hub
Jul-14
One American Center
CBD
30,228 Box, Inc.
Unknown
University Park
Central
24,690 Evernote Corporation
Aug-14
Colorado Tower
CBD 24,184 IPSoft, Inc4
Unknown
Perry Brooks
CBD
23,900 SpareFoot2
Jul-14
Former Austin Children's Museum
CBD
22,000 Google, Inc.
Jul-14
Northview Business Park
Northeast
18,700 GateHouse, Media
Jul-14
Colorado Tower
CBD 14,180 Kelly Hart & Hallman4
Unknown
Champion Office Park
Northwest 13,500 Jobs2Careers Sep-14
Lavaca Plaza
CBD
11,199
Outbound Engine
Jul-14
1 Renewal
2 Expansion
3 Sublease
4 Pre-lease/proposed or under construction

 

Sales Activity

Austin’s office investment sales activity included 13 sales transactions with a total sales volume of approximately $65 million, averaging $166 per SF.  Listed below are a few significant transactions that closed in Q3 2014.

Q3 2014 SIGNIFICANT SALES TRANSACTIONS – (100,000 SF or Greater) 

BUILDING NAME SUB-
MARKET
RBA
(SF)
YEAR BUILT BUYER SELLER CLOSED
Hill Country Galleria Southwest 257,000 2013 CSTRS & Invesco Real Estate REIT Mangement & Research LLC Sep-14
Cameron Business Park Northeast 567,381 1984-1995 Greenfield Partners LLC Scher Investment Group Jul-14
StoneCreek I & II North 239,910 1984/2000 CH Realty VI / O Austin Stonecreek, L.P. Intercontinental Real Estate Group Sep-14
Crossing at Lakeline Cedar Park 239,754 2008 DRA Advisors, LLC Simmons Vedder Partners Jul-14
Barton Oaks Plaza II & III South 237,835 1998 Invesco Real Estate HPI Real Estate/Sarofim Realty Advisors Jul-14
IBM Tivoli Systems Building I North 200,000 2002 Cs Kinross Lake Parkway LLC International Bush Machines Co Aug-14
Centennial Towers Central 156,293 1986 Taurus Investment Holdings, LLC Braun Enterprises
Sep-14
Arboretum Point Northwest 150,033 1985 Property Reserve Inc Fort Bend Investments LLC Aug-14
811 Barton Building
South
143,183
1986
Cornerstone Real Estate Advisors
TIAA-CREF
Aug-14
Southfield Office Building
South
141,768
1986
Southfield Office Holding LLC
Robert W Gray Builder
Aug-14
Pecan Park
Far Northwest
136,444
2009
IPIX Pecan Park LLC
CapRidge Partners
Sep-14
Click here to download this report as a PDF.

Austin Office Market Indicators


Q2
2014
Q3
2014
CITYWIDE NET ABSORPTION (SF) 99K
728K
CITYWIDE AVERAGE VACANCY 10.7% 9.7% 
CITYWIDE AVERAGE RENTAL RATE $27.70 $28.20
CITYWIDE DELIVERED INVENTORY (SF) 143K 0
CLASS A RENTAL RATE

     CBD $39.76 $41.57
     SUBURBAN $30.49 $30.81
CLASS A VACANCY

     CBD 16.0% 12.1% 
     SUBURBAN 10.5% 10.1% 


Job Growth & Unemployment (Not Seasonally Adjusted)

UNEMPLOYMENT 8/13 8/14
Austin 4.9% 3.9%
Texas 6.4% 5.5%
U.S. 7.3% 6.3%
JOB
GROWTH
ANNUAL CHANGE # OF JOBS ADDED
Austin 3.5% 31K
Texas 3.4% 381.6K
U.S. 1.8% 2.5M

Research Contact


Texas