Q1 2015 Austin Office Market Research Report
Austin’s office market adds over 600K SF of new inventory and vacancy rate remains nearly unchanged
Office vacancy remains low and rental rates continue to steadily rise across the Austin market in the first quarter of 2015.
Six buildings totaling 696K square feet were delivered in the first quarter, and almost 3.0M SF of office space is currently under construction. Among the projects delivered this quarter include IBC Bank Plaza, which is 89% leased, and Champion Office Park 2, which is fully leased. Some of the buildings under construction include Capital Ridge at 320 Capital of Texas Hwy, and 3700 San Clemente which is 38% pre-leased to the technology company, Spiceworks. Both are scheduled to deliver this month in the Southwest submarket.
The citywide average rental rate increased by 1.9% from $28.72 per SF to $29.26 per SF over the quarter. The average CBD Class A rental rate increased slightly from $42.26 per SF to $43.03 per SF, and the average suburban Class A rental rate increased from $31.15 per SF in Q4 to $31.46 per SF.
According to the Texas Workforce Commission, the Texas economy and employment across all major industry sectors continue to grow. Austin’s unemployment rate fell to 3.4% from 4.6% over the year, lower than both the state and national average.
Austin was the third fastest growing metro area in the nation during the past year with the population expanding by 3% between July 2013 and July 2014, according to the U.S. Census Bureau’s recent data.
Vacancy & Availability
Austin’s citywide vacancy rate increased 10 basis points from 9.1% to 9.2% between quarters and increased slightly in both the CBD and suburban submarkets. Between quarters, vacancy in the CBD increased by 10 basis points from 6.7% to 6.8%. Additionally, overall suburban vacancy increased from 9.5% to 9.6%.
The average CBD Class A vacancy rate remained unchanged between quarters but has decreased since Q1 2014 from 16.0% to only 9.7%. The average CBD Class B vacancy remains unchanged at a low 2.5%. The average suburban Class A vacancy rate increased 40 basis points between quarters from 10.2% to 10.6% and the average suburban Class B vacancy rate decreased 30 basis points from 9.8% to 9.5%.
The citywide Class A vacancy rate increased 30 basis points between quarters from 10.1% to 10.4%. This rise in vacancy is correlated with the delivery of 696K square feet of new construction in the CBD, North, Northwest and South submarkets.
Absorption & Demand
Austin’s office market posted 392,438 SF of positive net absorption in Q1 2015.
The North submarket posted the largest gain, with 179,785 SF of positive net absorption followed by the Northwest submarket, posting 169,766 SF of positive net absorption. The CBD submarket posted more than 100K SF of positive net absorption as new tenants entered the market including Dropbox, who took 56,211 square feet in 501 Congress Ave and WeWork, who moved into 65K square feet at 600 Congress Ave. Sizmek Inc. also moved its headquarters into Downtown Austin and now occupy 17,000 SF in IBC Bank Plaza.
The largest negative absorption this quarter occurred in the West Central submarket.
The citywide average rental rate increased by 1.9% from $28.72 per SF to $29.26 per SF over the quarter. Average citywide class A rental rates increased very slightly over the quarter from $33.68 per SF to $33.99 per SF. Class B rents also increased over the quarter by more than 5%, rising to $25.00 per SF in Q1 2015.
In the CBD, Class A rental rates have increased by 1.8% over the quarter, averaging $43.03 per SF. Class B rental rates in the CBD increased slightly from $33.70 per SF in Q4 2014 to $33.93 per SF at present, while the average suburban Class B rental rate is only $24.63 per SF. This large differential could be due to the extremely low vacancy rate of Class B office space in the CBD of only 2.5% which has remained steady since last quarter.
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