Austin Begins 2024 With Strong Office Sales

The Austin office market started off the year with solid investments, a change of pace from 2023’s final two quarters. The metro’s sales volume so far places it among the highest-performing office markets in the U.S., according to CommercialEdge data.

As of February, Austin had 4.3 million square feet of office space underway across 30 properties, accounting for 3.9 percent of existing stock, above the national figure of 1.6 percent.

Among high-volume secondary markets, Austin’s under-construction pipeline relative to existing stock outperformed that of The Bay Area (2.7 percent), Dallas (2 percent), Atlanta (1.8 percent) and Denver (1.2 percent), and came in third after San Diego, which led with 5.0 percent, and Nashville, at 4.3 percent.

Significant office projects still coming online in Austin

In terms of under-construction space, Austin’s pipeline came in fourth after San Diego (5.5 million square feet), Dallas (6.7 million square feet) and The Bay Area, that led with 7.3 million square feet. In the first two months of the year, developers completed 635,250 square feet of office space across four properties, representing 0.6 percent of total stock, while also showing a 221.7 percent year-over-year growth.

Notable office projects that came online include Uptown ATX ‘s One Uptown, a 381,739-square-foot Class A mid-rise that came online in January. The 14-story office property is part of developer Brandywine Realty Trust’s 66-acre mixed-use community dubbed Uptown ATX, that at full buildout will include 3.2 million square feet of residential, retail and office.

In 2023, 2.8 million square feet of office space were added to Austin’s inventory, placing the metro third in terms of delivered square feet, trailing only Dallas (4.2 million square feet) and The Bay Area (4.1 million square feet).

Another office project recently completed is Seamless Capital’s 1301 S. Lamar Blvd., a 134,623-square-foot Class A building in Austin’s South submarket. The four-story property came online in February and has Endeavor Real Estate Group as leasing broker.

Austin’s prices still soar

Year-to-date through February, the investment volume in Austin reached $118 million, with office properties changing hands at an average of $445 per square foot. Among secondary markets, Austin outperformed Philadelphia ($44 million), Houston ($49 million) and Charlotte ($11 million), while San Diego led the pack with $142 million and Dallas followed with $127 million.

The average sale price of office properties in the year’s first two months outperformed the national figure of $179 per square foot as well as all gateway metros, becoming the most expensive office market for the time frame.

In 2023, the metro’s total sales volume reached $582 million, with office properties trading at an average of $300.30 per square foot. The investment volume placed Austin in sixth place among peer markets, with The Bay Area leading at $1.3 billion in office sales. In terms of average price per square foot, Austin ranked third, with San Diego ($328.20 per square foot) and The Bay Area ($317.10 per square foot) leading the way.

On a quarter-to-quarter basis, 2023 started with $183 million in office investments, while the second quarter ended with $215 million in deals, point after which there was a steep drop, from the $98 million recorded in the third quarter to the $86 million recorded during the last.

The most expensive office sale of last year remained Boyd Watterson Asset Management’s $142 million purchase of the VA Outpatient Clinic, a 272,636-square-foot medical office property in Southeast Austin. Healthcare Property Advisors sold the property that is operated by the U.S. Department of Veterans Affairs.

The second-most expensive office transaction was CapMetro’s $87 million acquisition of Fifth + Tillery, a 187,155-square-foot office building near downtown Austin. CIM Group sold the creative office asset, that was originally a warehouse, with redevelopment plans completed in 2020.

Office vacancy doesn’t curb rise in Austin

As of February, Austin’s office vacancy rate reached 22.1 percent, one of the highest among gateway markets, outperformed in the state only by the 24.5 percent rate recorded in Houston. The office vacancy rate fluctuated throughout 2023, ranging from 20.4 percent in February, 19.9, in the summer then ending the year at 21.1 percent.

One significant office lease in the metro remains IBM Corp.’s 320,000-square-foot lease at The Domain, two upcoming office towers developed by Hines, that will total 500,000 square feet. The company already occupied 800,000 square feet at The Domain, allowing it to consolidate its Austin teams in one location.

In February this year, Transwestern Real Estate Services landed the leasing assignment of a three-property office portfolio totaling 521,501 square feet. The buildings, Great Hill Plaza, Westech 360 and Park Center, are owned by Pacific Oak Capital Advisors.

Austin’s coworking sector still steady

Austin’s coworking sector registered 1.1 million square feet of shared office space, having the same inventory as San Diego but outperforming Nashville’s 632,270 square feet and Charlotte’s 505,060.

On a share of coworking space as percentage of total leasable office space, Austin reached 1.7 percent, the same as the national figure, as well as other high-volume secondary metros in the state, such as Dallas and Houston. Atlanta and Denver led the rankings, both at 2.0 percent.

Year-to-date through February, WeWork remains the company with the largest footprint of coworking space in the metro, with locations totaling 398,450 square feet. The flex office provider was followed by Cubework, with 219,040 square feet, Austin Film Society, with 175,000 square feet, Regus, with 157,736 square feet and ReadySpaces, with 106,211 square feet.

In January, Industrious opened a 20,573-square-foot coworking space in Austin, marking its fourth location in the city. The flex office provider partnered with PGIM Real Estate and HPI Real Estate and Investment Services on its expansion strategy. The new location is at PGIM’s 301 Congress Ave., a 418,388-square-foot office tower.