Austin Office Market Commands High Prices

The Austin office market managed to secure its spot as a leader in development across the Sun Belt region, CommercialEdge data shows. Despite the office sector still shrinking its pipeline nationally, the Texas capital managed to stand out with its share of under-construction projects relative to total stock significantly higher than the national average.

Growing vacancy rates are also affecting high-volume secondary markets and Austin is no exception. Additionally, the rise of discounted sales is expected to continue in the U.S. The Texas capital recorded significant office deals, placing it among the best-performing markets for transactions in the U.S.

As of July, 5.7 million square feet of office space was under construction across 32 office properties in Austin, representing 5.2 percent of the existing stock. The figure is well above the national average of 1.3 percent, positioning Austin at the forefront of Sun Belt metros, followed by Nashville (3.4 percent), Tampa (2.9 percent), San Diego (2.8 percent) and Charlotte (2.1 percent).

CommercialEdge has developed a new tool that identifies office space that would easily lend itself to residential conversion. With the debut of its Conversion Feasibility Index, the data provider offers an image of what amount of space in the top U.S. markets can be rolled into residential based on a comprehensive list of features. While Austin is not part of the top markets on the list, some of its high-volume secondary peer markets are near the top of the ranking.

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Austin’s under-construction pipeline ranked second across similar markets in terms of actual square footage underway, after Dallas (6.2 million square feet) and followed by San Diego (3.2 million square feet) and Houston (2.8 million square feet).

One notable office development currently under construction is The Republic, Lincoln Property Co.’s 816,560-square-foot high-rise in downtown Austin. The company, together with co-developers Phoenix Property Co. and DivcoWest, broke ground on the 48-story project in 2022, with expected completion date set for June 2025.

Year-to-date through July, developers delivered 945,519 square feet of office space across 14 properties, showing a 38.7 percent year-over-year decrease in office completions.

Significant projects that came online this year include Uptown ATX’s One Uptown, a 381,739-square-foot Class A property owned by Brandywine Realty Trust. The 14-story office building was completed in January and is part of the developer’s 66-acre mixed-use campus dubbed Uptown ATX, to include 3.2 million square feet of space upon delivery.

Office investment in Austin

Year-to-date through July, Austin recorded $699 million in office deals, with 30 properties totaling 2 million square feet changing hands at an average price of $432 per square foot. Among peer markets, the metro outperformed Dallas ($584 million), Houston ($482 million) and Tampa ($392 million), while on a national level it placed sixth, after Phoenix, that had $705 million in sales.

The Texas capital stood out as the priciest office metro among similar markets, followed by San Diego ($277 per square foot), Nashville ($205 per square foot), Phoenix ($171 per square foot) and Charlotte ($143 per square foot).

One notable deal in the metro was The City of Austin’s $87 million acquisition of 2400 and 2410 Grover Blvd., an office asset that will be converted into affordable housing. Plans call for the creation of some 135,000 housing units until 2028. The 193,788-square-foot, two-building office campus is occupied by the seller, Tokyo Electron, which will continue its occupancy for another year.

Another significant transaction was the $25.7 million sale of Las Cimas IV, a 138,008-square-foot office property at 900 S. Capital of Texas Highway in Southwest Austin. The five-story building was purchased by Formentera Partners from Los Angeles County Employees Retirement Association, with the help of an $18 million loan originated by StanCorp Financial Group.

Austin office market posts high vacancy rates

Austin’s office vacancy reached 22.9 as of July, showing a 240 basis-point increase year-over-year and exceeding the national average of 18.1 percent. The rate was higher than the 22.0 percent recorded in the first month of 2024, but fell from the 23.3 percent May figure—the highest number so far this year.

Above-average office vacancies were also recorded across similar markets, such as Houston and Dallas, where the figure stood at 23.4 percent and 21.4 percent, respectively. Orlando had the lowest rate as of July, at 15.6 percent.

Transwestern Real Estate Services landed a significant leasing assignment in February this year, when it became the exclusive leasing agent for a three-property office portfolio in the metro. Totaling 521,401 square feet across eight building, the ensemble is owned by Pacific Oak Capital Advisors and includes Great5 Hills Plaza, Westech 360 and Park Center.

Coworking share smaller than national average

As of July, the metro’s coworking inventory included 859,163 square feet of shared office space, accounting for 1.5 percent of the market’s total leasable office space, below the national figure of 1.8 percent.

Year-to-date though July, the flex office provider with the largest footprint of coworking space in the Austin remained WeWork, with locations totaling 302,087 square feet. The company was followed by Austin Film Society, with 175,000 square feet, Regus, with 157,736 square feet, Cubework, with 112,000 square feet and Expansive, with 106,830 square feet.

In April, FUSE Workspace expanded its footprint in East Austin, with a new location at an energy-efficient, three-story Class A building totaling 33,000 square feet, expected to open this September. The flex office provider’s new space will include 126 private offices, five meeting room and an expansive coworking space with group and individual seating, among other features.