You have reached your limit of free articles this month.

Enjoy unlimited access to myStatesman.com

Starting at just 99¢ for 8 weeks.

GREAT REASONS TO SUBSCRIBE TODAY!

  • IN-DEPTH REPORTING
  • INTERACTIVE STORYTELLING
  • NEW TOPICS & COVERAGE
  • ePAPER
X

You have read of premium articles.

Get unlimited access to all of our breaking news, in-depth coverage and bonus content- exclusively for subscribers. Starting at just 99¢ for 8 weeks

X

Welcome to myStatesman.com

This subscriber-only site gives you exclusive access to breaking news, in-depth coverage, exclusive interactives and bonus content.

You can read free articles of your choice a month that are only available on myStatesman.com.

Austin office market still strong despite uptick in vacancy


Highlights

Demand for space remains strong despite slower job growth.

Market’s positive momentum expected to hold throughout 2017.

The occupancy rate in Central Texas’ office market softened slightly in the first quarter compared to a year ago but rents are still on the rise, a new industry report shows.

In its quarterly office market report, Cushman & Wakefield said the occupancy rate for top-tier space (Class A) averaged 90.1 percent at the end of March, down from 91.3 percent on average as of March 2016.

Rents for the highest tier space rose 3.3 percent, to an average of $37.86 per square foot per year from $36.63 in the first quarter of 2016, Cushman & Wakefield reported.

Rick Whiteley, managing director for Cushman & Wakefield Austin, said the Austin area office market continues to be one of the strongest in the United States, despite the region’s job growth — which fuels demand for office space — having slowed some lately.

“Sustained job growth over an extended period of time in high tech industries and others that need more and more space coupled with a steady but manageable supply of new space continues to result in strong underlying market fundamentals such as occupancy rates, rental rates, and absorption,” Whiteley said. “This remains true even though job growth through December 2016 was not as robust as it was in the preceding four years.”

In a seperate report, commercial real estate brokerage CBRE said that although the office vacancy rate has ticked up a bit, “the office market is expected to keep its positive momentum through 2017 based on the projected job growth of 29,000 new Austin payrolls.”

Whiteley said at this stage, it’s hard to tell exactly what impact, if any, slower job growth is having.

“Vacancy has increased slightly but tying it to this slowdown is premature. It is likely one of the contributing factors, but not the only one.”

Chrissy Fuller, a principal in Austin with Avison Young, a global commercial real estate services firm, said the increase in overall vacancy is mostly due to new buildings coming online. CBRE said developers delivered about 1 million square feet of new space to the market in the first quarter, with an additional 1.7 million square feet under construction.

But despite the rise in vacancy, “the market has not cooled off, ” Fuller said.

“We have seen an uptick in activity in the first quarter of 2017, part of which could probably be attributed to pent-up demand from the election and holidays and most of which we will probably see the effect of in market stats over the next few quarters. With around 2 million square feet of office under construction and continued population and job growth, we see continued momentum on the horizon for the rest of 2017. Our out-of-town clients continue to consider Austin one of their main ‘growth offices’ compared to other locations.”

Whiteley said that software companies, along with social media and financial technology firms, are some of the companies that have been consistently driving demand for space in Central Texas.

In downtown Austin, tenants are facing several challenges, “including significant operating expenses due in large part to high property taxes,” said Will Douglas, a first vice president in Austin with CBRE.

“Parking is also an increasingly big challenge and the lack of availability has allowed landlords to increase rates significantly,” he said.

Diana Holford, senior vice president with global commercial real estate brokerage JLL, said most of the push in rents can be attributed to increases in taxes on commercial buildings.

“Landlords pass that cost on to the tenants who are responsible for paying for increases in operating and tax expenses,” she said.

The “tender spot” in the market presently is in sublease space, Holford said. Douglas notes there is now 1.3 million square feet of office sublease space on the market, the majority of which is in downtown and northwest and southwest Austin.

“Most times sublease space trades at a discount,” Holford said. “Consequently, if you are looking for a deal in office space, a sublease is your ticket.”



Reader Comments ...


Next Up in Business

Texas House OKs bill to eliminate franchise tax
Texas House OKs bill to eliminate franchise tax

A plan to eliminate the state’s main business tax won initial approval from the Texas House late Thursday, despite arguments from opponents that the move is short-sighted at a time when lawmakers already are struggling to bridge a multibillion-dollar funding gap with deep budget cuts. The House voted 98-45 to approve House Bill 28, which would...
Business Digest: Exxon fined $20M for emissions from Texas plant

OIL & GAS Exxon fined $20 million for emissions from Texas plant BAYTOWN — A judge has ordered Exxon Mobil to pay a penalty of nearly $20 million for releasing 10 million pounds of pollutants into the air over the course of eight years from a refining and chemical complex east of Houston. U.S. District Judge David Hittner in a ruling Wednesday...
Another big investor tells Whole Foods to explore sale
Another big investor tells Whole Foods to explore sale

Amid reports that Whole Foods Market could be the target of a takeover bid by supermarket chain Albertsons, a second major investor in the Austin-based company has publicly said it is calling on management to consider a sale. Mutual-fund manager Neuberger Berman, which owns 8.7 million shares – a 2.7 percent stake – of Whole Foods stock...
Secretive billionaire reveals how he toppled Apple in China
Secretive billionaire reveals how he toppled Apple in China

BEIJING — Duan Yongping is convinced Tim Cook didn’t have a clue who he was when they first met a couple years ago. The Apple boss probably does now. Duan is the reclusive billionaire who founded Oppo and Vivo, the twin smartphone brands that dealt the world’s largest company a stinging defeat in China last year. Once derided as cheap...
LinkedIn: Tips on finding functions you might not know about

Whether you joined LinkedIn to network in the business world or look for a new job, it features some functions that you might not know about but should. Here are a few. 1. To anonymously check profiles, go to your home page, click the down arrow next to “Me” on the toolbar, and select Settings & Privacy. Click “Privacy” at the...
More Stories