Austin’s Office Vacancy Increases Sharply

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As of April, Austin’s office market had 5.9 million square feet underway, representing 6.7 percent of total stock, according to CommercialEdge data. Since the end of 2022, the Texas capital’s under-construction pipeline shrank by 1.7 million square feet, while on a year-over-year it was nearly cut in half, decreasing from the 10.3 million square feet registered back in April 2022.

The metro still leads the nation when it comes to office development on a percentage-of-stock basis. Planned and under construction projects represented a whopping 24.7 percent of total inventory, trailed by Nashville (13.6 percent), Seattle (13.0 percent) and San Francisco (13.0 percent).

The two largest office projects under construction as of April broke ground last year. Lincoln Property Co., Phoenix Property Co. and DivcoWest are constructing The Republic, a 48-story, 833,000-square-foot tower in downtown Austin.

Additionally, Lincoln Property Co. and Kairoi Residential are constructing Waterline, the second-biggest office building underway in the metro. Upon completion, the 74-story high-rise is set to become the tallest tower in the city. The 74-story skyscraper is slated to encompass 700,000 square feet of office space, a 251-key 1 Hotel Austin, ground-level retail and dining, as well as 352 residential units.

Companies expand in the Texas capital

Defying ongoing tech setbacks, in the beginning of 2023 Apple moved forward on the second phase of its $1 billion Parmer Lane campus. The tech giant completed the first phase of the 133-acre, 12-building project in 2022.

Westinghouse Crossing. Rendering courtesy of St. John Properties

In April, St. John Properties entered the Austin market with the purchase of a 35-acre property in Georgetown, Texas. The company is planning to develop a mixed-use project on a speculative basis, to comprise 170,000 square feet of flex R&D space, more than 40,000 square feet of office space and nearly 15,000 square feet of retail space.

Also in April, California-based Redcar closed on Redcar Fund II with $418 million in equity commitments, marking its expansion in Austin. The privately held real estate investment company invests in urban commercial real estate and converts underperforming industrial properties into creative office assets.

Nationwide, Austin had the biggest year-over-year spike in office vacancy through April, rising 590 basis points and hitting 22.0 percent. Most similar-growth Sun Belt peer markets saw a decrease of their vacancy rates since the same period in 2022, including Charlotte (-270 basis points), Nashville (-60 basis points) and Houston (-330 basis points), while Phoenix‘s rate grew by 320 basis points.

Transaction volume shrinks, prices down

Year-to-date through April, Austin’s office market saw the transaction of assets worth roughly $183 million, with 19 properties sold since the beginning of the year. Prices averaged at $224.8 per square foot, down from last year’s average of $271 per square foot for this period. Deal volume was also lower than in the same period in 2022, when office transactions amounted to $237 million.

Hartland Plaza. Image courtesy of CIM Group

In February, CIM Group sold Hartland Plaza, a 184,128-square-foot, Class A asset in downtown Austin, marking one of the largest transactions this year. The seller plans to acquire additional properties in the metro, Shaul Kuba, co-founder & principal of the firm, said in a prepared statement.

MIG Real Estate closed the $102 million purchase of Braker Metric Business Park, a 545,000-square-foot, Class B office development comprising a total of 13 buildings. World Class Capital Group was the seller of the North Austin asset.

Austin’s coworking hub

Expansive Austin Highland. Image courtesy of Expansive

As of April, the Austin market comprised roughly 1.7 million square feet of coworking space, representing 1.8 percent of total rentable office space and slightly higher than the national average of 1.7 percent that month. Nashville (2.5 percent) and Atlanta (2.1 percent) led the list of Sun Belt peer markets with most shared space relative to total leasable stock.

Regus and WeWork dominated the city’s flex office inventory, with numerous locations spread throughout the metro. In May, Expansive announced the imminent opening of Expansive Austin Highland, a 48,000-square-foot coworking location. The company picked up the 53,415-square-foot building last year, for $10.4 million. The five-story property underwent a multimillion-dollar renovation plan prior to its opening in May 2023.