Austin-area office market continued its roll in 2016


Highlights

Cushman & Wakefield: Class A space was 91.7 percent occupied in the fourth quarter

Class A rents were $36.95 on average, up from $36.70 a foot in late 2015.

The Austin-area office market ended 2016 on a strong note as job growth in the Central Texas region, though slowing some, continued to drive demand for office space.

That’s according to the fourth-quarter report from Cushman & Wakefield Austin, which tracks the Central Texas office market.

Top-tier office space in the region was 91.7 percent occupied by year’s end, essentially unchanged from last year’s 91.8 percent occupancy rate, according to Cushman & Wakefield.

Average rents for first-class space rose to $36.95 per square foot per year, up from an average of $36.70 a foot at year-end 2015, the report found.

Landlords can expect to remain in the driver’s seat next year, some local office brokers say.

“With limited new supply (that is not pre-leased) coming online in 2017, it’s likely to continue to be a landlord’s market barring any significant economic downtown,” said Chad Barrett, a principal with Aquila Commercial, a commercial real estate brokerage in Austin.

Barrett is leasing an office project at 801 Barton Springs Road that is due to open in late 2017. The development is seeing strong interest, with a number of deals in negotiation, Barrett said.

In the market overall, leasing activity generally has been fueled by demand from creative, tech and co-working companies, Barrett said.

Ryan Bohls, managing director in Austin for the global commercial brokerage Newmark Grubb Knight Frank, said most of the new office space “has been swallowed up by strong national credit users like Facebook and Amazon, who took close to 250,000 square feet combined at the Domain in North Austin. The significance of what’s going on at the Domain cannot be overstated.”

Developers plan to build two more office buildings at the Domain, a mixed-use project often referred to as the city’s “second downtown.” One building will have 15 stories and the other will have 17 stories, and each will have 315,000 square feet of space.

Austin-based Endeavor Real Estate Group is teaming with Dallas-based Tier REIT on the two new buildings, which are planned for the north end of Alterra Parkway.

In addition, construction is underway on Domain Tower, an 11-story office building that will have 310,000 square feet of space and is scheduled to open in early 2018. The developer is HPI Real Estate Services & Investments, partnering with Stonelake Capital.

The past two years in the Austin-area office market have been marked by historic leasing activity, Bohls said.

“The vacancy remains limited, which is surprising considering quite a bit of new supply has delivered,” Bohls said. Rates for top-quality space “remain very high relative to historic trends. We’ve also seen a significant number of properties come online for sale as current property owners look to cash out at what could be the peak of the market,” Bohls said.

After four consecutive years of creating more than 38,000 jobs a year, the most recent employment figures from the Texas Workforce Commission show job growth in the region has slowed to fewer than 20,000 jobs annually through November.

“As international investors focus on Central Texas and current owners become increasingly bullish with new properties planned on a speculative basis (without signed tenants on board), the question will be whether the market can continue this trajectory,” Bohls said.



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