Austin

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Q3 2016 | Austin Office | Market Report

Austin continues to grow and the office rental rates are going along for the ride. Austin’s population is growing faster than any other metro in the U.S., and now the CBD rates are higher than other large metro’s including Chicago, Miami, and even Los Angeles. As a result, the vacancy rates are starting to fall, and there’s about 350,000 square feet set to deliver by the end of 2016 and 1,297,228 square feet coming in Q1 2017.

Three buildings totaling 259,480 SF delivered in the third quarter, and 216,549 SF of that was preleased. The largest building that delivered was the 179,846 SF 5th & Colorado building, located in the CBD submarket.

The citywide average rental rate increased by 7.3% from $36.02 per square foot to $38.68 per square foot over the quarter. Class A rental rates in Austin’s CBD increased by 12.4% over the quarter to $50.90 per square foot from $49.52 per square foot in Q2. Overall suburban Class A rental rates also increased, from $33.69 per square foot to $35.20 over the quarter.

  

It was announced in October that Austin’s population will double in size by 2040, reaching over 4 million people. This makes it America’s fastest growing metro. Austin is also expected to climb from the 33rd largest metro in America to the 21st by 2040. Though the population continues to increase, Austin’s unemployment rate has decreased yet again. According to the Austin Chamber, Austin is ranked first for unemployment rates among the top 50 metros in America, followed closely by San Francisco.

Vacancy & Availability

Austin’s citywide vacancy rate decreased marginally between quarters from 11.9% to 11.7%. The CBD Class A vacancy rate remained the same over the past two quarters at 7.2%. The suburban Class A vacancy rate was also paused at Q2’s rate of  13.6% for this quarter.

Overall suburban vacancy decreased over the quarter to 12.9%. Submarkets that saw a decrease in vacancy over the quarter include Cedar Park, East, Far Northwest, Northeast, Northwest, 

Overall suburban vacancy increased over the quarter to 13.0%. The only submarket that saw a significant decrease in vacancy over the quarter was West Central, which fell from 16.3% to 8.0% since Q1 2016.

Submarkets that experienced increases in vacancy in Q2 include Cedar Park, East, North/Domain, Northeast, Northwest, Round Rock, South, Southeast and Southwest. In the Round Rock submarket, the vacancy increased by 11.4% despite delivering an 89.5% pre-leased building this quarter. Round Rock, Southeast, and West Central. The Round Rock submarket saw the largest decrease in vacancy falling from 18.3% to 8.5% over the quarter, which was due to Houghton Mifflin Harcourt moving into their 85,000 SF space at 2700 La Frontera Blvd.

Absorption & Demand

Austin’s office market posted 326,073 square feet of positive net absorption in Q3 2016. The three submarkets that experienced the largest increase in net absorption during 2016, so far, include West Central, Far Northwest, and Round Rock. A majority of the positive net absorption in the third quarter can be attributed to the Northwest submarket’s Class A office space that saw 142,178 square feet of positive net absorption. The second highest positive net absorption occurred in Class B space in the East submarket, with 101,480 square feet absorbed in the third quarter.

The Southwest submarket had eight tenants move into spaces 10,000 SF or larger, yet still saw 107,883 SF of negative absorption in Class A space. One of the tenants that entered the Southwest submarket was Yeti Coolers, who moved into their 87,000 SF space at 7601 Southwest Pky.

Citywide, Class B space saw 139,660 SF of positive net absorption in the third quarter. Positive net absorption in Cllass B space occurred in the East, Northeast, Round Rock, and Southeast submarkets.

Absorption, New Supply & Vacancy Rates

  

Rental Rates

According to CoStar, our data provider, Austin’s citywide average rental rate increased over the quarter from $36.02 per square foot to $38.68. As expected, the highest rates across the Austin market in the second quarter were in CBD Class A buildings, where rental rates reached $50.90 per square foot. Rental rates were also high in the West Central submarket and Central submarket where Class A rental rates reached $40.18 per square foot and $40.09 per square foot respectively.

Citywide Class B rental rates rose in Q3 to $27.57 per square foot from $26.03 in Q2. Class B rates in the CBD decreased by 8.7% over the quarter from $36.34 per square foot to $39.51 per square foot.

Leasing Activity

Austin’s office leasing activity recorded 1,144,532 SF in Q3 2016.  Major transactions this quarter included a new lease for Samsung SARC  at 3900 N Capital of Texas Hwy and a renewal for Frensenius.

Q2 2016 Top Office Leases

BUILDING NAME/ADDRESS
SUBMARKET SF TENANT LEASE DATE
3900 N Capital of Texas Hwy
Southwest
101,596 Samsung SARC Jul-16
11801 Domain Dr North/Domain 80,757 Amazon Sep-16
12301 Research Blvd Northwest 67,955 Cadence Jul-16
Park on Barton Creek Southwest 63,597 Fresenius1 Sep-16
3297 Ranch Road 620 S Southwest 37,757 TrueCar
Jul-16
5001 Plaza on the Lake Dr Southwest 32,625 Amherst Holdings LLC1 Sep-16
8300 N MoPac Expy Northwest 31,958 Unknown2 Sep-16
12331-B Riata Trace Pky Northwest 31,715 Bankers Toolbox1 Aug-16
805 Las Cimas Parkway Southwest 28,078 PeopleAdmin Inc.1 Sep-16 
11801 Domain Dr North/Domain 24,916 Aristocrat Technologies Inc Aug-16
206 E 9th St CBD 24,024 NetLine Aug-16
500 W 2nd Street CBD 22,404 Fish & Richardson Sep-16
400 W 15th St
CBD 17,281 Unknown Jul-16
10809 Burnet Rd North/Domain 17,033
Unknown Aug-16
12357 - A Riata Trace Pky   Northwest 16,652 Zynga Aug-16
9240 Research Blvd Northwest 16,109 Excellent Professional Development Centers Sep-16
1601 S MoPac Expy Southwest 15,796 Unknown Aug-16
10415 Morado Cir Northwest 11,336 Park University  Aug-16
 9600 Great Hills Trl Northwest 11,258  E2 Open  Jul-16 
 3900 N Capital of Texas Hwy Southwest   10,858  Merrill Lynch  Jul-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 one portfolio sale) with an average sale price of $302 per SF.

Q3 2016 SIGNIFICANT SALES TRANSACTIONS – (100,000 SF or Greater) 

BUILDING NAME SUB-
MARKET
RBA
(SF)
YEAR BUILT BUYER SELLER SALE PRICE $/SF CLOSED
800 Cesar Chavez St* CBD 126,124 2015 Clarion Partners Seaholm Power LLC 
$75,841,912.00 $601.33 Sep-16
9606 N MoPac Expy* Northwest 200,628 1999 KBS Realty Advisors Heitman $63,053,948.00 $314.28 Jul-16
9600 N MoPac Expy* Northwest 193,921 2001 KBS Realty Advisors Heitman
$60,946,052.00 $314.28 Jul-16
6433 N Champion Grandview Way* Northwest 116,800 2014 Menlo Equities Endeavor Real Estate Group $48,710,789.00 $417.04 Jul-16
6433 N Champion Grandview Way* Northwest   103,800  2015 Menlo Equities  Endeavor Real Estate Group  $43,289,211.00  $417.04  Jul-16 
8701 N MO Pac Expy Central 119,858  1987 Eurus Capital  Equity Commonwealth  $21,500,000.00  $179.38  Aug-16 

Sources: CoStar and Real Capital Analytics

*Part of a portfolio

Office Development Pipeline

2,729,585 square feet of office space was under construction during Q3 2016.  Three buildings totaling 259,480 square feet delivered in Q3 including 411 W Main St, a 33,634 square foot building in the Round Rock submarket. Sixteen proposed buildings were given the green light to begin construction this quarter.


BUILDING NAME
ADDRESS
SUBMARKET
SF PRE-LEASED DEVELOPER EST. DELIVERY
Presidio I 
11900 W Parmer Ln.
Round Rock
25,409  49.9% Riverside Resources Oct-16
3114 S Congress Ave.  
South
 
32,000 100.0% Unknown Oct-16
9811 Vikki 
9811 Vikki Ter.
Southwest 
22,000 64.10% Unknown  Nov-16
Diamond Building
Aldrich St & Simond Ave
East 
57,761 35.6% Catellus Development Corporation Dec-16
Parmer Sector 3 Bldg 1
Parmer 3.1
Northeast
189,000 100.0% Trammel Crow Co Dec-16
Building 1
7601 Southwest Pky 
Southwest
87,500 100.0% Lincoln Property Company Jan-17
Building 2
7601 Southwest Pky 
Southwest
87,500 100.0% Lincoln Property Company   Jan-17
500 W 2nd St 
CBD
500,512 55.3% Trammel Crow Co   Jan-17
Domain 8
11601 Alterra Parkway 
North/Domain 
291,058 82.1% Endeavor Real Estate Group   Feb-17
uShip
205 E Riverside Dr 
South
39,600 100.0% Chioco Designs   Mar-17
2301 E Riverside Dr
Southeast
29,205 0.0% Unknown Apr-17
Galleria Oaks I
3297 Ranch Road 620 S
Southwest
74,532 51.4% Unknown   May-17
Galleria Oaks II
3297 Ranch Road 620 S 
Southwest
74,532 51.4% Unknown   May-17
Overlook at Barton Creek
317 Grace Ln 
Southwest
53,091 0.0% Harren Interests   Jul-17
University of Texas Systems
702 Colorado St
CBD
342,000 100.0% Unknown   Jul-17
Shoal Creek Walk
835 W 6th St 
CBD
218,180 38.9% Schlosser Development   Jul-17
Building 2
5100 W US HWY 290 SVRD WB
Southwest
27,199 43.7% Unknown  Aug-17
Paloma Ridge Building C
13620 Ranch Road 620 N
Cedar Park
112,500 0.0% Unknown Oct-17
The Reserve at Oak Hill
6804 Old Bee Caves Rd 
Southwest
38,448 0.0% Unknown  Dec-17

Q3 Office Highlights

  

Click here to download the report as a PDF.

Austin Office Market Indicators


Q2
2016
Q3
2016
 
VACANCY RATE 11.9% 
11.7% 
NET ABSORPTION
(Million Square Feet)
(.015) .326
NEW CONSTRUCTION
(Million Square Feet)
.110 
.409 
UNDER CONSTRUCTION
(Million Square Feet)
1.644
1.151 
CLASS A VACANCY RATE
 
     CBD 9.7% 
7.2% 
     SUBURBAN 12.8% 
13.6%
GROSS ASKING RENTS
(Per Square Foot Per Year)

 
     AVERAGE $34.89 $38.68
     CBD CLASS A $44.21  $50.90 
     SUBURBAN CLASS A $32.77  $35.20 


Job Growth & Unemployment (Not Seasonally Adjusted)

UNEMPLOYMENT 8/15 8/16
Austin 3.4% 3.5%
Texas 4.6% 5.0%
U.S. 5.0% 5.2%
JOB
GROWTH
ANNUAL CHANGE # OF JOBS ADDED
Austin 3.2% 30.9K
Texas 1.6% 186.9K
U.S. 1.7% 2.4M

Texas