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Q3 2015 | Austin Office | Market Report

Among the 50 largest U.S. cities, Austin is the #1 fastest growing city based on population growth between July 2013 and July 2014 according to Forbes. Austin grew at 2.9% over the year, beating out other major cities by a long shot. Tenants moving into new office space during Q3 2015 amount to a positive net absorption of 871,272 square feet, the highest positive net absorption ever recorded.

  

Class A rental rates in Austin’s CBD increased by 7.5% over the quarter - a sign that despite the seemingly endless new construction, the demand for office space in the CBD is not slowing down.

Four buildings totaling 463,502 square feet delivered in the third quarter, and just under two million square feet of office space is currently under construction. Of that two million, 1,002,050 square feet is scheduled to deliver in Q4 2015. Projects delivered in Q3 include Rollingwood Center Buildings 1 & 2 in southwest Austin.

The citywide average rental rate increased slightly by 0.46% from $30.16 per SF to $30.30 per SF over the quarter. The average CBD Class A rental rate increased dramatically by 7.5% over the quarter from $41.50 to $44.60. Suburban submarkets also saw an increase in rental rates as the average Class A suburban rental rate increased from $33.43 per square foot to $33.85 per square foot over the quarter.

According to the Texas Workforce Commission, Texas’ unemployment rate of 4.4% is among the lowest that the state has ever seen. In the state’s capital city, unemployment was at a mere 2.8% at the end of the third quarter 2015, 100 basis points lower than it was last year.

Vacancy & Availability

Austin’s citywide vacancy rate decreased 70 basis points from 13.2% to 12.5% between quarters, continuing its gradual decrease since Q2 of 2009. Vacancy in the CBD remains lower than the average, at 8.3%, a decrease of 80 basis points since the end of the second quarter. Overall suburban vacancy also decreased over the quarter from 14.2% to 13.6%.

The suburban Class A vacancy rate increased 70 basis points over the quarter from 13.5% to 14.2%, continuing its gradual increase since Q4 2013. The average suburban Class B vacancy decreased 200 basis points over the quarter from 16.1% to 14.1%

Absorption & Demand

Austin’s office market posted 871,282 SF of positive net absorption in Q3 2015, most of which occurred in CBD’s Class A office buildings, and in the far northwest, northwest and southwest submarkets. The northwest submarket posted the largest positive absorption of 306,849 SF, where Indeed.com, the #1 job searching website, moved into 220,000 SF at Champions Office Park. The southwest submarket posted the second largest gain with 155,534 SF of positive net absorption due primarily to ARM, Inc who moved into 101,867 SF at Encino Trace I. The CBD posted the third largest gain of 129,187 SF of positive net absorption almost completely in Class A office space. Cirrus Logic has pre-leased 85,000 SF at Shoal Creek Walk, set to begin construction next month. Additional transactions in the CBD in late Q2 and early Q3 include AllClear ID leasing up 21,610 SF at 816 Congress and shortly thereafter expanding into 33,720 SF at their existing location across the street at 823 Congress for a total transaction size of 55,330 SF.

Absorption, New Supply & Vacancy Rates

  

The demand for office space in Austin has caused a push to expand operations into secondary locations, such as in the above transaction, due to a lack of supply. Alternatively, corporations find office space outside of the CBD. Overall positive net absorption for suburban office space reached 742,095 SF at the end of Q3, nearly double what it was last quarter, and far higher than any time in history.

Rental Rates

The citywide average rental rate increased slightly by 0.46% from $30.16 per SF to $30.30 per SF over the quarter. Behind the CBD, where rental rates are now averaging at $42.37 per SF, the west central submarket has the second highest average rates at $37.99 per SF.

For Class A office space, rates in the CBD increased by 7.5% over the quarter to $44.60 per SF. The second highest average Class A rental rates are in west central submarket at $41.96 per SF.

Citywide average Class B rental rates are much lower than Class A space, averaging at $24.63 while Class A citywide average rental rates are $35.67 per SF.

Leasing Activity

Austin’s office leasing activity recorded 887,637 SF in Q3 2015. Major transactions this quarter included new leases for Electronic Arts, Inc. who will take 125,007 SF at 7700 Parmer - Bldg B, and Oracle who will occupy 121,275 SF in 7700 Parmer - Bldg C.

Q3 2015 Top Office Leases

BUILDING NAME/ADDRESS
SUBMARKET SF TENANT LEASE DATE
7700 W Parmer Ln. - Bldg C
Far Northwest
125,007 Electronic Arts, Inc
Aug-15
7700 W Parmer Ln. - Bldg B
Far Northwest
121,275 Oracle Corporation
Aug-15
1601 S MoPac Expy
Southwest 99,047 Logitech1 Jul-15
301 Congress Ave
CBD 95,537 RetailMeNot1 Aug-15 
835 W 6th St
CBD
84,872 Cirrus Logic
Aug-15
7700 W Parmer Ln, Bldg A
Far Northwest
61,471 Dun & Bradstreet Corp.
Aug-15
301 Congress Ave
CBD 41,803 Gerson Lehrman Group
Jul-15
823 Congress Ave
CBD 33,800 AllClear ID
Sep-15
Park Centre Building II
Northwest 32,319 Motion Computing, Inc.
Jul-15
98 San Jacinto Blvd
CBD 28,000 TechSpace Jul-15
12301 Research Blvd
Northwest 23,379 Site Stuff, Inc.
Aug-15
One American Center
CBD 22,314 WeWork2
Jul-15
816 Congress Ave
CBD 21,000
AllClear IC
Jul-15
501 Congress
CBD 20,391
Spanning Cloud Apps
Jul-15
11501 Alterra Pky - Domain 7
North 17,811 Unknown Jul-15
One American Center
CBD 14,000 Unknown Aug-15
98 San Jacinto Blvd
CBD 13,492 Insurance Zebra, Inc.
Aug-15
1806 Rio Grande St
CBD 11,452 uStudio, Inc.
Aug-15
12600 Hill Country Blvd
Southwest 10,343
ZEEP3 Aug-15
1 Renewal
2 Expansion
3 Sublease
4 Pre-lease/proposed or under construction

 

Sales Activity 

Austin’s office investment sales activity included three sales transactions (including one portfolio sale) with an average sale price of $369 per SF.

Q3 2015 SIGNIFICANT SALES TRANSACTIONS – (100,000 SF or Greater) 

BUILDING NAME SUB-
MARKET
RBA
(SF)
YEAR BUILT BUYER SELLER SALE PRICE $/SF CLOSED
Bank of America Center
CBD 258,176 1975 KBS REIT III
Stream Realty Partners
Undisclosed   Undisclosed 8/2015
Domain 7*
North 221,973 2015 TIER REIT, Inc
Deutsche Asset & Wealth Management
$66.8M $301 7/2015
501 Congress
CBD 191,517 1961 AFIAA U.S. Investment, Inc
Stream Realty Partners
$79.1M $645 8/2015
Domain 3* North 179,006 2001 TIER REIT, Inc
Deutsche Asset & Wealth Management
$53.8M  $301 7/2015 
Domain 4* North  152,992
2001  TIER REIT, Inc  Deutsche Asset & Wealth Management  $46.0M
$301  7/2015 
Domain 1* North  114,665
2004
TIER REIT, Inc  Deutsche Asset & Wealth Management  $34.5M
$301  7/2015 
*Part of a portfolio

Office Development Pipeline

Almost two million square feet of office space was under construction during Q3 2015.  Only four buildings delivered this quarter including Rollingwood Center Buildings I & II. Almost half of the buildings currently under construction plan to deliver in Q4 2015.


BUILDING NAME
ADDRESS
SUBMARKET
SF PRE-LEASED DEVELOPER EST. DELIVERY
Green Water Treament Plant
500 W 2nd St
CBD
489,404 41.2% Trammel Crow Co Jan-16
5th & Colorado
201 W 5th St
CBD
179,846 9.5% Lincoln Property Company Mar-16
Research Park Plaza Bldg V
12301 Research Blvd
Northwest
171,500 0.0% Cousins Properties Incorporated Nov-15
Lamar Central
3800 N Lamar Blvd
West Central
168,752 28.1% Highland Resources, Inc. Nov-15
Encino Trace 2
5707 Southwest Pky
Southwest
158,137 14.6% Koontz McCombs Nov-15
Quarry Oaks III
10901 Stonelake Blvd
Northwest
140,000 100.0% Riverside Resources Dec-15
Aspen Lake Two
13785 US-183
Far Northwest
128,700 100.0% Patrinely Group Nov-15
Domain 1 - 11801 Domain Blvd - North
124,578 0.0% Endeavor Real Estate Group
Mar-16

Paloma Ridge Bldg A  13650 N FM 620   Cedar Park

106,200
0.0% Stream Realty
Oct-15
Paloma Ridge Bldg B  13650 N FM 620   Cedar Park  106,200  0.0%  Stream Realty  Nov-15 
317 Grace Ln
317 Grace Ln
Southwest
87,748 2.5% Equitable Commercial Realty Dec-16
Domain 5
2901 Esperanza Crossing
North
74,804 0.0% Endeavor Real Estate Group Feb-16
411 W Main St
Round Rock
26,563 0.0% 411 Partners, LLC
Jan-16
NorthShore
110 San Antonio St
CBD
23,592 100.0% Trammel Crow Co Oct-15

Click here to download the report as a PDF.

Austin Office Market Indicators


Q2
2015
Q3
2015
CITYWIDE NET ABSORPTION (SF) 435K
871K
CITYWIDE AVERAGE VACANCY 13.2% 12.5% 
CITYWIDE AVERAGE RENTAL RATE $30.16 $30.30
CITYWIDE DELIVERED INVENTORY (SF) 581K 463K
CLASS A RENTAL RATE

     CBD $41.50 $44.60
     SUBURBAN $32.97 $33.43
CLASS A VACANCY

     CBD 11.2% 9.8% 
     SUBURBAN 13.5% 14.2% 


Job Growth & Unemployment (Not Seasonally Adjusted)

UNEMPLOYMENT 8/14 8/15
Austin 3.9% 2.8%
Texas 5.3% 4.4%
U.S. 6.3% 5.2%
JOB
GROWTH
ANNUAL CHANGE # OF JOBS ADDED
Austin 3.4% 31.1K
Texas 1.8% 212K
U.S. 2.1% 2.9M

Q3 2015 Highlights

Texas