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Q1 2017 | Austin Office | Market Report

Boots On The Ground

Commentary by David Bremer

Our “Boots on the Ground” view point is the voice of our experts, who have broken down the market data and compared it to what they are seeing for themselves. This is their take on what the numbers actually mean for the Austin office market.

The Austin office market saw a continued “leveling out” of both activity and rates in the first quarter of 2017. The average vacancy rates increased to 11.4% from 11.1%, fueled in part by new construction delivering with vacancy. Despite the additional space, and a slight rise to vacancy rates, gross asking rents ticked slightly upward from $33.17 to $33.25. Landlords and the money behind them clearly remain bullish on commercial real estate in Austin.

Our local experts continue to see a significant level of sublease space hitting the market as companies right-size and continue to position themselves in less heavy traffic corridors (i.e. a flight to the core or to a specific location central to existing workforce). Of the nearly 800,000 SF of office space currently listed for sublease, approximately 440,000 SF is located in the Southwest submarket.

Like traffic, cranes in the Austin skyline continue to be a way of life. 2,817,709 square feet of office space was under construction during Q1 2017 with notable buildings such as Domain 8 (291,058 SF, 95.1% pre-leased), Shoal Creek Walk (218,180 SF, 63.4% preleased), and 500 W 2nd (500,512 SF, 75.1% pre-leased) all set to deliver by years’ end. Competition for spaces that offer central proximity without parking headaches are in high demand.


Future Forecast

Current trends will continue through the second quarter as buildings in the construction pipeline deliver to healthy demand. Despite a slight bump in Austin’s unemployment, the past year has seen the addition of 27,400 jobs and market fundamentals seem strong despite a slowdown in growth. Many of the construction projects set to deliver in 2017 have yet to be pre-leased so a slight increase in vacancy rates in subsequent quarters with negative absorption seem likely, but not enough to move us out of our (very, very long) positive cycle quite yet.

Exciting partnerships created by the opening of the Dell Medical Center promised to increase demand and Austin area jobs, and are officially seeing that occur. Most notably, Merck Pharmaceuticals received the first incentives agreement from the Austin City Council since 2014, which would see the creation of 600 jobs over a 10 year period. This trend will continue and the office market will see a rise in bioscience companies considering Austin.

Overall, we don’t see any market movers on the near horizon so ouradvice remains the same: For Tenants, start early and get informed (it remains a Landlords’ market). For Landlords, continue to insulate yourselves from market changes by incentivizing tenants to do longer term deals.

Austin Office Overview

In the first quarter of 2017, Austin’s office market saw 80,508 SF of negative net absorption. This is the first time we’ve seen negative net absorption in the office market since Q3 2012. In Q2 2017, there is 1,149,059 SF being moved into by 30 different tenants, which may help counter balance this quarters deficit.

There is currently 2,817,709 SF of office space under construction and 1,501,043 SF of that is pre-leased. The second quarter of 2017 is set to see 642,827 SF in deliveries. As of now, 2,305,175 SF of space is supposed to hit the Austin office market during the remainder of 2017.

Two buildings totaling 97,316 SF delivered in the first quarter, and 60,163 SF of that was pre-leased. The largest building that delivered was the 57,761 SF, 35.6% pre-leased, Diamond Building, located in the East submarket.

The citywide average rental rate increased over the quarter by 0.24%, from $33.17 per SF to $33.25 per SF in the first quarter. Class A rental rates in Austin’s CBD decreased by 4.1% over the quarter to $48.63 per SF from $50.71 per SF in the fourth quarter of 2016. Overall suburban Class A rental rates increased, from $34.26 per SF to $34.41, over the quarter.

In February, Austin was ranked #1 on the U.S News “Best Places to Live” list. Denver, CO, San Jose, CA, Washington, DC, and Fayetteville, AR rounded out the top five on the prestigious list. According to the year end data from KDH (Kinghorn, Driver, Hough), Austin had the largest percentage increase of jobs in large Texas metros in 2016. With the 4.9% increase in jobs, Austin beat Dallas/ Fort Worth by 1.6%. Austin added a total of 50,318 jobs in 2016, while Houston added 14,700, and San Antonio added 25,000.


Vacancy & Availability

Austin’s citywide vacancy rate increased marginally between quarters from 11.1% to 11.4%. The CBD Class A vacancy rate also increased in the new year from 6.0% in Q4 2016 to 7.3% in Q1 2017. The suburban Class A vacancy rate dropped quarter over quarter from 12.7% to 11.7%.

Overall suburban vacancy decreased slightly over the quarter to 12.3%. Submarkets that saw a decrease in vacancy over the quarter include Cedar Park, Far Northwest, North/Domain, Northeast, Round Rock, and Southwest. The Cedar Park submarket saw the largest decrease in vacancy, falling from 42.2% to 35.8% over the quarter.

Absorption & Demand

Austin’s office market posted 80,508 square feet of negative net absorption in Q1 2017, which is the first time the Austin office market has seen negative net absorption since Q3 2012. The three submarkets that experienced the largest positive net absorption during 2016, include Southeast, Far Northwest, and North/Domain.

A majority of the positive net absorption in the fourth quarter happened in the Class A Southeast submarket, totalling 101,441 square feet of positive net absorption. This can be attributed to Oracle’s 550,750 square feet lease at 2300 Cloud Way, which was the largest lease this quarter. The second highest positive net absorption occurred in Class A space in the Far Northwest submarket, with 87,539 square feet absorbed in the first quarter.

The CBD and Southwest submarkets had the most tenants, with four tenants each, move into spaces 10,000 square feet or larger. The total amount of leases signed in Q1 in the CBD was 96,700 square feet. The submarket with the most square feet leased in Q1 was the Southeast with 581,552 square feet, while the Northeast submarket came in second with 169,286 square feet of leases. One of those leases was Austin Regional Clinic’s 70,215 square foot renewal.

Quarterly Absorption, New Supply & Vacancy Rates


Annual Absorption, New Supply & Vacancy Rates


Rental Rates

According to CoStar, our data provider, Austin’s citywide average rental rate increased slightly over the quarter from $33.17 per SF to $33.25 per SF. As expected, the highest rates across the Austin market in the first quarter were in CBD Class A buildings, where rental rates averaged $48.63 per SF. Rental rates were also high in the West Central submarket and Central submarket where Class A rental rates reached $43.24 per SF and $40.50 per SF respectively.

Citywide Class B rental rates declined in Q1 to $27.78 per square foot from $28.11 in Q4. Class B rental rates in the CBD decreased by 8% over the quarter from $41.38 per square foot to $38.04 per square foot.

Citywide, Class B space saw 233,404 square feet of negative net absorption in the first quarter. Positive net absorption in Class B space occurred in the Central and East, submarkets.

Leasing Activity

Austin’s office leasing activity recorded 1,106,904 SF in Q1 2017. Major transactions this quarter included a new lease for Oracle at 2300 Cloud Way and a renewal for Austin Regional Clinic at 6937 Interstate 35 North.

Q1 2017 Top Office Leases

2300 Cloud Way Southeast 550,750 Oracle Jan-17
1023 Springdale Rd East 93,000 Unknown Mar-17
9001 I-35 N Northeast 87,884 Unknown Mar-17
6937 IH 35 N Northeast 70,215 Austin Regional Clinic15 Feb-17
5301 Southwest Pky Southwest 45,255 Unknown Jan-17
500 W 2nd St CBD 33,932 Firmspace Austin, LLC Feb-17
500 W 2nd St CBD 31,694 Deloitte, LLP Jan-17
3154 Highway 71 E Southeast 30,802 Avalon Correctional Services Inc1 Mar-17
5301 Southwest Pky Southwest 23,956 Unknown Jan-17
2100 S Interstate 35 S South 22,279 Unknown Feb-17
206 E 9th St CBD 20,939 Unknown Jan-17
9715 Burnet Rd North 14,850 Unknown Jan-17
3700 N Capital Of Texas Hwy Southwest 14,514 Unknown Feb-17
6850 Austin Center Blvd Northwest 12,069 Lithium Technologies, Inc. Mar-17
3711 S MoPac Expy Southwest 11,834 Unknown  Jan-17
8200 Cameron Rd Northeast 11,187 Unknown3 Feb-17
6034 Courtyard Dr W Northwest 11,033 Unknown Jan-17
9420 Research Blvd Northwest 10,576 Unknown Mar-17
500 W 2nd St CBD 10,135 LogicMonitor, Inc. Mar-17
1 Renewal
2 Expansion
3 Sublease
4 Pre-lease/proposed or under construction

5 Colliers International Transaction

Sales Activity 

Austin’s office investment sales activity included five sales transactions (including two portfolio sales) with an average sale price of $344 per SF.

Q1 2017 SIGNIFICANT SALES TRANSACTIONS – (100,000 SF or Greater) 

4515 Seton Center Pkwy1 Northwest 117,265 1996 Riverside Resources Corp Equity Commonwealth Undisclosed N/A Feb-17
4516 Seton Center Pkwy1 Northwest 120,559 1998 Riverside Resources Corp Equity Commonwealth Undisclosed N/A
10801 N Mo Pac Expy North/Domain 195,000 2001 Undisclosed Piedmont REIT $49,250,000 $251 Feb-17
221 W 6th St2 CBD 391,500 1974 Goldman Sachs, Lincoln Property Co Spire Realty Group $173,000,000 $441 Jan-17
10900 Stonelake Blvd12 Northwest 292,421 1998 Goldman Sachs Principal RE Investors $100,000,000 $341 Jan-17

Sources: CoStar and Real Capital Analytics

1 Part of a portfolio
2 Sale Price is Approximate 

Office Development Pipeline

2,817,709 square feet of office space was under construction during Q1 2017. Two buildings totaling 97,361 square feet delivered in Q1 including uShip’s new building at 205 E Riverside Drive. Ten proposed buildings were given the green light to begin construction this quarter.

Domain 8
11601 Alterra Parkway
291,058 95.1% Endeavor Real Estate Group Apr-17
3114 S Congress Ave
32,000 100.0% Unknown Apr-17
2301 E Riverside Dr
29,205 0.0% Unknown Apr-17
Building 2
7601 Southwest Pky
87,500 100.0% Lincoln Property Company Apr-17
University Village Office Condos
1101 Satellite View
Round Rock
17,000 60.0% Scott Swindell Apr-17
Galleria Oaks I
3297 Ranch Road 620 S
63.0% Unknown May-17
Galleria Oaks II
3297 Ranch Road 620 S
74,532 34.0% Unknown May-17
9811 Vikki Ter
22,000 64.10% Unknown May-17
Gateway to Falconhead
3270 Ranch Road 620 S
15,000 0.0% Pathfinder PFP Retail LLC Jun-17
Shoal Creek Walk
835 W 6th St
218,180 63.4% Schlosser Development Jul-17
University of Texas Systems
702 Colorado St
342,000 100.0% Unknown Jul-17
Building 1
7601 Southwest Pky
87,500 33.4% Lincoln Property Company Jul-17
Overlook at Barton Creek Systems
317 Grace Ln
60,168 0.0% Unknown Jul-17
1217 W Slaughter Ln
48,078 0.0% Unknown Jul-17
Walsh Tarlton Overlook
2530 Walsh Tarlton Ln
55,500 0.0% JTM Development Jul-17
Southwest Crossing
5100 W US HWY 290 SVRD WB
27,199 27.9% Development 2000, Inc Aug-17
3944 Ranch Road 620 S
23,000 83.5% Unknown Sep-17
La Palma Plaza
12030 N Lamar Blvd
25,400 0.0% Unknown Oct-17
Mopac Centre
8611 N Mo Pac Expy
95,863 0.0% Eurus Capital Nov-17
Presido II
11800 Parmer Ln
Round Rock
Round RockRound Rock
50,000  0.0%  Riverside Resources Nov-17
500 W 2nd St
500,512  75.1%  Trammel Crow Co Nov-17
801 Barton Springs Rd
90,500  2.8%  Generational Commercial Properties  Dec-17 
The Reserve at Oak Hill
6804 Old Bee Caves Rd
38,448  0.0%  Unknown  Dec-17 
Springdale general
1023 Springdale Rd 
165,000  56.4%  Unknown  Mar-18 
Third + Shoal 
607 W 3rd St
347,534  0.1%  Cielo Realty Partners  Jul-18 

Q1 Office Highlights


Click here to download the report as a PDF.

Austin Office Market Indicators



(Million Square Feet)

(Million Square Feet)

(Million Square Feet)


     CBD 6.0%

     SUBURBAN 12.7%

(Per Square Foot Per Year)
     AVERAGE $33.17

     CBD CLASS A $50.71
     SUBURBAN CLASS A $34.26

Job Growth & Unemployment (Not Seasonally Adjusted)

Austin 3.0% 3.7%
Texas 4.6% 4.9%
U.S. 4.9% 4.7%
Austin 2.8% 27.4K
Texas 1.8% 218.8K
U.S. 1.7% 2.36M