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Q2 2022 Austin Office Report

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Austin has continued to outperform most comparable markets in both leasing and post-pandemic office use.

Key Takeaways
  • Activity has slowed in the past sixty days. This is typical during the summer; however national economic conditions have introduced a little more uncertainty into the market.
  • Subleases performed well during the second quarter, especially high quality centrally located options, however suburban subleases have seen less activity.
  • Average rates continued their upward trend as new Class A product hit the market and concessions also moved north which helped offset effective prices. Outside of a few select under-performing markets, most Landlords remain bullish.
2022_Q2_Austin_Office_Vacancy Rate   2022_Q2_Austin_Office_NetAbsorption 
 2022_Q2_Austin_Office_Under Construction    2022_Q2_Austin_Office_Lease Rates

 

Boots On The Ground

Austin has continued to outperform most comparable markets in both leasing and post-pandemic office use. We continued to see demand and competition for Class A offices in core markets (CBD and surrounding, along with the Domain), which led to relatively flat vacancy and average rates which continued to trend flat or slightly up. A mixture of high tech and professional services led the way with new leases ranging from 60k to 220k rsf spread throughout the market. Suburban markets have continued to lag in activity resulting in a slight increase in overall vacancy, with a few Landlords (primarily far west) beginning to advertise lower rates and/or increased concessions.

Subleases in and around the core performed well during the second quarter, with multiple 20k-50k rsf spaces successfully subleased at very respectable rates. Activity has waned significantly as you move away from the CBD, and the majority of suburban spaces that were successfully subleased did so at discounted effective deals. We have seen a few large blocks of sublease space come to the market in the past couple months, and we’re hearing rumors that this trend could continue for Q3.

 
Market Indicators
 2022_Q2_Austin_Office_Market Indicators
 
Historic Comparison
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Unemployment Rate
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The Market, at a Glance 

Construction pricing has remained high due to activity and competition for subs, however we started to see a few projects come in lower than expected in June which could be a signal toward returning to some sort of equilibrium. Timeframes for plan development continues to push longer than typical due to most of the prominent MEP shops working at capacity, and city of Austin permitting timelines change monthly.

 
Future Forecast

We believe Austin will continue to see a good deal of demand which will protect against short term hits to occupancy rates, but the uncertainty of the national economy combined with more large companies considering flex programs makes us less bullish than previous quarters. Its most likely that overall market direct rates remain flat, while sublease rates will likely go down due to increased competition and less immediate prospects. Based on our current tracking of possible users (either new to the market or expanding), the overall market should remain healthy, albeit a little more Tenant friendly. Potential “market movers” we will be watching for include (i) significant blocks of sublease space coming to market, likely from tech users, and (ii) major shifts in the national economy which notably impact hiring and employment numbers. 

Sublease Environment
2022_Q2_Austin_Office_Sublease Environment

 
Austin Capital Markets

The second quarter of 2022 saw a rapid change to the investment sales environment in Austin primarily driven by rapid interest rate increases. The current environment has caused some lenders to sit on the sidelines, especially for office product, and there is little agreement on market CAP rates for different product types. There is also little consensus on exit cap rates. We saw some buyers drop contracts in the second quarter given the changes in the interest rate environment. Despite these headwinds, Collier Austin closed three investment sales transactions in the $3-$20MM range a in the second quarter and have two other properties under contract. Centrally located properties in Austin continue to see a high level of interest. Suburban office buildings struggle with a pricing gap between buyer and seller expectations, especially buildings with large vacancy or owner/user buildings. We expect to see more stability toward the end of the year as interest rates stabilize.

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Notable Completions
 2022_Q2_Austin_Office_Notable Transactions

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Q2 2022 Austin Office Report

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Related Experts

Doug Rauls

Executive Vice President

Austin

I bring more than 20 years of experience in all aspects of commercial real estate including landlord representation, tenant representation, investment sales, financial analysis, acquisitions, development and operations. I started my brokerage career in Dallas, Texas then moved to Austin in 2000, working for Trammell Crow Company, Aspen Properties and The Kucera Companies. I joined Colliers as Executive Vice President in March 2015.  In addition to a focus on office landlord representation, I have deep experience in investment sales, with a track record of closing multiple transactions per year.  In 2016, 2018 and 2019, I was a Colliers' Everest Award recipient. This award is given to the top 10% of all Colliers professionals in brokerage, valuation and corporate solutions across the U.S. business based on revenue production.

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