Austin

Q4 2014 | Austin Office | Market Report

Office vacancy rates decreased by 13.1% between quarters as new tenants lease space in Austin’s CBD. However, citywide absorption slowed to 206,565 SF in the Q4 2014 compared to 728,703 in Q3 2014. 

Two buildings totaling 131,500 SF of office space delivered in Q4 2014, and more than 3.0m SF of office space is currently under construction. Some of these buildings include the Colorado Tower, already 95% pre-leased, IBC Bank Plaza, which is 90% pre-leased, fully pre-leased 901 Congress Ave., and finally 311 Bowie Street where Whole Foods has pre-leased office space. 

The citywide average rental rate decreased 1.5% from $28.20 per SF to $27.79 per SF over the quarter; but, increased from $27.19 per SF to $27.79 per SF over the year. The average CBD rental rate remained stable since Q3 2014, with a slight increase from $39.34 per SF to $39.37 per SF, and the average suburban rental rate decreased from $26.51 to $26.08.

According to the Texas Workforce Commission, the Texas economy and employment across all major industry sectors continue to grow at a record pace. Austin’s unemployment rate fell to 4.0% from 5.2% over the year. 

According to the U.S. Census Bureau, Austin is the third-fastest growing city in the United States, and second in Texas.  Austin’s population grew by 27.4% from 2000 to 2013; and when paired with strong job growth, boosts office leasing. 


Absorption, New Supply & Vacancy Rates

Vacancy & Availability

Austin’s citywide vacancy rate decreased 10 basis points from 9.7% to 9.6% between quarters and vacancy decreased across both the CBD and suburban markets. With the influx of growing companies into Austin’s CBD, some tenants have relocated to the suburban submarkets where large blocks of space are available to accommodate expansion requirements. Between quarters, the average suburban vacancy rate decreased slightly from 10.1% in Q3 2014 to 10.0%. The average CBD vacancy rate saw an even greater drop between quarters, from 8.4% to just 7.3%. 

The average CBD Class A vacancy rate decreased 160 basis points between quarters from 12.1% to 10.5%, and the average CBD Class B vacancy rate decreased 20 basis points from 3.1% to 2.9%. The average suburban Class A vacancy rate remained the same at 10.5%, and the average suburban Class B vacancy rate fell 110 basis points from 11.5% to 10.4% between quarters. 

Absorption & Demand

Austin’s office market posted 206,565 SF of positive net absorption in Q4 2014, a significant slow down as compared to Q3 2014.

The CBD submarket posted the largest gain, with 99,047 SF of positive net absorption, followed by the Southwest submarket, posting 72,146 SF of positive net absorption. Cedar Park, Far Northeast, Far Northwest, and Northwest all experienced negative absorption.

Demand for office space remains strong spurring new development. Of the 26 buildings currently under construction citywide, 41.5% of that office inventory is already pre-leased. 

Rental Rates

The citywide average rental rate decreased 1.5% from $28.20 per SF to $27.79 per SF over the quarter; however, increased from $27.19 per SF to $27.79 per SF over the year. Average citywide Class A rents decreased slightly from $32.99 to $32.22 and Class B rents increased from $22.91 to $23.29 over the quarter.

The Class A average rental rate in the CBD increased slightly from $41.57 per SF to $41.62 per SF between quarters, while the suburban Class A average rental rate decreased only slightly from $30.81 per SF to $29.99 per SF. The average Class B rental rate in the CBD increased from $33.03 per SF to $33.68 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%

48,802

$50.97

Parkway Properties, Inc.

One American Center

600 Congress Ave.

CBD

503,951

1984

96.1%

93,160

$42.44

Parkway Properties, Inc.

300 West Sixth

300 W. 6th Street

CBD

454,225

2001

95.5%

20,331

$49.49

Parkway Properties, Inc.

UFCU Plaza

8303 N. MoPac Expy

Central

246,869

1987

90.0%

24,721

$38.22

University Federal Credit Union

University Park

3300 N. Interstate 35

Central

206,657

2009

69.9%

62,148

$35.40

Spear Street Capital GP LLC

7700 Parmer Lane - Bldg A

7700 Parmer Lane

Far Northwest

250,000

1999

75.2%

62,000

$39.45

Spear Street Capital GP LLC

7700 Parmer Lane - Bldg C

7700 Parmer Lane

Far Northwest

282,000

1999

82.3%

98,000

$39.45

Spear Street Capital GP LLC

Prominent Pointe I

8310 N. Capital of Texas Hwy

Northwest

151,092

1986

88.6%

24,873

$50.32

DivcoWest

Prominent Pointe II

8310 N. Capital of Texas Hwy

Northwest

105,830

2008

84.5%

29,531

$48.13

DivcoWest

Two Barton Skyway 1601 S. MoPac Expy South 195,639 2000 87.4% 39,305 $37.64 DRA Advisors, LLC

Note: Avail. SF includes direct and sublet space as well as any future available space listed.
Source: CoStar Property


Leasing Activity

Austin’s office leasing activity reached more than 400K SF in Q4 2014 with transactions including renewals, expansions, subleases, and pre-leases in buildings currently under construction.

Q4 2014 Top Office Leases

BUILDING NAME/ADDRESS
SUBMARKET SF TENANT LEASE DATE
2500 Bee Caves - Bldg 1 Southwest 138,900 EZCorp, Inc.4 Nov-14
Quarry Oaks Northwest 137,615 Bazaarvoice
Nov-14
Quarry Oaks 1 Northwest 30,578 ARA Diagnostic Nov-14
Donley Plaza North 23,278 Data Recognition Corporation1 Oct-14
301 Congress Ave. CBD 20,809 Morgan Stanley Smith Bamey1 Dec-14
Research Park Place - Bldg 8 Northwest
18,362 Cenpatico2 Dec-14
Balcones North Northwest 11,000

Tech Ranch

Dec-14
Research Park Place - Bldg 8 Northwest 10,779 Liberty Mutual Dec-14
Barton Oaks Plaza 1 South 10,058 Strategic Partners1 Nov-14
1 Renewal
2 Expansion
3 Sublease
4 Pre-lease/proposed or under construction
5 Colliers International Transaction
6 Extension

 

Sales Activity 

Austin’s office investment sales activity included 4 sales transactions with a total sales volume of approximately $466.5 million, averaging $289 per SF.  Listed below are a few significant transactions that closed in Q4 2014.  

Q4 2014 SIGNIFICANT SALES TRANSACTIONS – (100,000 SF or Greater) 

BUILDING NAME SUB-
MARKET
RBA
(SF)
YEAR BUILT BUYER SELLER CLOSED
One Congress Plaza CBD 549,000 1985 Parkway Properties CalSTRS Nov-14
San Jacinto Center CBD 403,329 1987 Parkway Properties CalSTRS Nov-14
River Place Corporate Park (7-property portfolio) Northwest 574,379 2001 Leon Shadowen Kurt Day Oct-14
3600 San Clemente - Bldg B Southwest 90,267 2006 Scher Investment HPI Real Estate Services & Investments Oct-14

Austin Office Market Indicators


Q3
2014
Q4
2014
CITYWIDE NET ABSORPTION (SF) 728K
207K
CITYWIDE AVERAGE VACANCY 9.7% 9.6% 
CITYWIDE AVERAGE RENTAL RATE $28.20 $27.79
CITYWIDE DELIVERED INVENTORY (SF) 0 131.5K
CLASS A RENTAL RATE

     CBD $41.57 $41.62
     SUBURBAN $30.81 $29.99
CLASS A VACANCY

     CBD 12.1% 10.5% 
     SUBURBAN 10.1% 10.5% 


Job Growth & Unemployment (Not Seasonally Adjusted)

UNEMPLOYMENT 10/13 10/14
Austin 5.2% 4.0%
Texas 6.1% 4.8%
U.S. 7.0% 5.5%
JOB
GROWTH
ANNUAL CHANGE # OF JOBS ADDED
Austin 3.4% 29.6K
Texas 3.9% 436.7K
U.S. 2.0% 2.8M

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