Austin

Research Contact


Q1 2016 | Austin Office | Market Report

After a major spike in the second half of 2015, Austin’s citywide positive net absorption decreased in Q1 2016 to 290,047 square feet. 

Three buildings totaling 321,024 square feet delivered in the first quarter. Projects that delivered in Q1 include the fully leased NorthShore building in the CBD, Research Park Plaza V in the Northwest submarket, and Domain I in the North/Domain submarket. Domain I has yet to sign a tenant. In the East submarket, there is over 350,000 square feet of proposed new construction with average rates in the low 30s.


  

The citywide average rental rate increased by 0.5% from $31.12 per square foot to $31.27 per square foot over the quarter. Class A rental rates in Austin’s CBD decreased by 1.1% over the quarter to $44.64 per square foot from $45.14 per square foot in Q4. Overall suburban Class A rental rates increased from $33.46 per square foot to $33.98 per square foot over the quarter. 

Texas added 2,100 nonfarm jobs in February, expanding the state’s employment for the 11th consecutive month. Austin’s unemployment rate remains the second lowest in the state behind Amarillo. Since Q1 2015, Austin’s unemployment rate has dropped from 3.5% to 3.1%.Texas has seen an upward trend in the education and health services industry for 37 consecutive months. Seven out of eleven major industries saw growth in the first quarter across the state.

Vacancy & Availability

Austin’s citywide vacancy rate remained unchanged between quarters at 11.2%. However, since the first quarter of 2015, citywide vacancy has dropped 140 basis points from 12.6%. 

Vacancy in the CBD remains lower than the average at 6.7%. Since Q1 2015, vacancy in the CBD has decreased dramatically by 210 basis points. Over the quarter, overall vacancy in the CBD fell by ten basis points. 

Overall suburban vacancy remained the same over the quarter at 12.4%. Submarkets that saw a significant decrease in vacancy over the quarter include Central, Far Northwest, and West Central. Vacancy in the Far Northwest submarket in Class A properties dropped from 15.2% to 6.8% over the quarter. 

Submarkets that experienced increases in vacancy in Q1 include Northwest, and North/Domain. In the North/Domain submarket, Domain I, a 124,578 SF office building, delivered in January and remains completely vacant.

Absorption & Demand

Austin’s office market posted 290,047 square feet of positive net absorption in Q1 2016, a dramatic decrease from the second half of 2015 which saw 1,889,284 square feet of positive net absorption. A majority of the positive net absorption in the first quarter can be attributed to the Far Northwest submarket’s Class A office space that saw 160,581 square feet of positive net absorption. LDR Spine USA, a medical manufacturing facility, moved into their 53,170 SF space in Aspen Lake One. 

The second highest positive net absorption occurred in Class A space in the CBD with 63,213 square feet in the first quarter, due in a large part to the delivery of the NorthShore building where Galvanize moved into 23,592 SF of space. NorthShore was 100% leased at completion. Citywide Class B space saw 42,442 SF of negative net absorption in the first quarter. Negative net absorption in Class B space occurred in the Northwest, South, Southwest and CBD submarkets.

Absorption, New Supply & Vacancy Rates

  

Rental Rates

The citywide average rental rate increased over the quarter from $31.12 per square foot to $31.27 per square foot. The highest rates across the Austin market in the first quarter were in CBD Class A buildings where rental rates reached $44.64 per square foot. Although still higher than other submarkets, Class A rates in the CBD fell by 1.1% since Q4 2015. Rental rates were also high in the South submarket and West Central submarket where Class A rental rates reached $39.38 per square foot and $37.62 per square foot respectively. 

Citywide Class B rental rates rose slightly in the first quarter to $25.71 per square foot from $25.43 per square foot in Q4. Class B rates in the CBD rose by 4% over the quarter from $35.48 per square foot to $36.91 per square foot.

Leasing Activity

Austin’s office leasing activity recorded 1,316,525 SF in Q1 2016. Major transactions this quarter included a new lease for Accruent at Domain 4 and a renewal for Oracle USA, Inc.

Q1 2016 Top Office Leases

BUILDING NAME/ADDRESS
SUBMARKET SF TENANT LEASE DATE
Domain 4
North/Domain
400,000 Accruent
Mar-16
5800 Airport Blvd
Central
75,735 Netspend Jan-16
Lamar Central
West Cental 69,868 Unknown Feb-16
9600 N MoPac Expy Northwest 44,712 Oracle USA, Inc1 Feb-16
Rollingwood Center
Southwest
37,883 Unknown
Feb-16
Riata Corporate Center
Northwest 33,557 Unknown Feb-16
Research Park Plaza
Northwest 25,937 Navitus Health Solutions
Jan-16
13620 Ranch Road 620 N
Cedar Park 22,285 CalAtlantic Homes Mar-16
The Park at Barton Creek
Southwest 21,265 Unknown
Feb-16
Lakeview Plaza
Northwest 19,664 2Wire, Inc.1 Jan-16
816 Congress
CBD 18,660 Unknown Mar-16
Capstar Plaza
West Central 17,515 Jones Lang LaSalle Feb-16
Park Centre
Northwest 16,228
Xplore Technologies
Mar-16
Atrium Office Center
Central 16,146
The Community Care Collaborative Feb-16
Monterey Tech Centre  Southwest 14,400 Arrive Logistics Mar-16
1705 Guadalupe St.  CBD 11,210 NeighborFavor, Inc., DBA "Favor" Feb-16
Scarbrough Building CBD 10,536 ClearData Mar-16
Lamar Central West Central 10,288 AcademicWorks Feb-16
1 Renewal
2 Expansion
3 Sublease
4 Pre-lease/proposed or under construction

 

Sales Activity 

Austin’s office investment sales activity included four sales transactions (including two portfolio sales) with an average sale price of $294 per SF.

Q1 2016 SIGNIFICANT SALES TRANSACTIONS – (100,000 SF or Greater) 

BUILDING NAME SUB-
MARKET
RBA
(SF)
YEAR BUILT BUYER SELLER SALE PRICE $/SF CLOSED
Parmer Office Park (6 Properties)* Northwest 257,468 1999-2001 US Real Estate Investment FUnd, LLC & Eurus Capital
REEF America LLC
Undisclosed N/A 1/16
9101 Burnet Rd. & 12710 Research Blvd* North/Domain & Northwest 124,310 1984 Valor Capital Partners
OakPoint and Haverford Management
Undisclosed N/A 2/16
University Park
Central 206,657 2009 Lionstone Investments
UP Austin Holdings LP
$64,270,327 $311 3/16
316 W. 12th St. CBD 100,000 1950 Austin 360 LP Texas State Teachers Association
Undisclosed N/A 3/16
*Part of a portfolio

Office Development Pipeline

1.35 million square feet of office space was under construction during Q1 2016. Three buildings totaling 321,024 square feet delivered in Q1 including Domain I, a 5-story office building with ground level retail in the North/Domain submarket. Domain 11, a proposed 400,000 SF building, got the green light to begin construction.


BUILDING NAME
ADDRESS
SUBMARKET
SF PRE-LEASED DEVELOPER EST. DELIVERY
Domain 5
11305 Alterra Pky
North/Domain 
74,804 0.0% Endeavor Real Estate Group Apr-16
5th & Colorado
201 W. 5th St.
CBD 
179,846 26.8% Lincoln Property Company Jun-16
2700 La Frontera Blvd
Round Rock 
97,941 89.3% Unknown  Jun-16
9811 Vikki Terrace
Southwest 
22,000 64.1% Unknown  Jul-16
411 W. Main St.
Round Rock 
33,634  14.0% 411 Partners, LLC Jul-16
Presidio I
11900 W. Parmer
Round Rock 
24,000 50.0% Riverside Resources Aug-16
Pioneer Bank Building
623 W. 38th St.
Central 
46,000 62.3% Pioneer Bank Sep-16
317 Grace Ln.
Southwest 
87,748 2.5% Equitable Commercial Realty Dec-16
Green Water Treament Plant
500 W 2nd St
CBD
500,512 41.2% Trammel Crow Co Jan-17
Domain 8
11601 Alterra Parkway
North/Domain 
291,058  0.0% Endeavor Real Estate Group Feb-17

Click here to download the report as a PDF.

Austin Office Market Indicators


Q4
2015
Q1
2016
VACANCY RATE 11.2% 11.2% 
NET ABSORPTION 874K 290K 
NEW CONSTRUCTION 671K 321K 
UNDER CONSTRUCTION 1.6M 1.4M 
CLASS A VACANCY RATE

     CBD 7.5% 6.9% 
     SUBURBAN 12.4% 12.4% 
ASKING RENTS

     AVERAGE  $31.12 $31.27 
     CBD CLASS A $45.14 $44.64 
     SUBURBAN CLASS A $33.46 $33.98 


Job Growth & Unemployment (Not Seasonally Adjusted)

UNEMPLOYMENT 1/15 1/16
Austin 3.5% 3.1%
Texas 4.4% 4.3%
U.S. 5.8% 5.2%
JOB
GROWTH
ANNUAL CHANGE # OF JOBS ADDED
Austin 4.2% 39.8K
Texas 1.5% 172.7K
U.S. 2.0% 2.9M

Texas