After strong 2017 finish, outlook bright for Austin office market


Highlights

Big office leases by blue-chip tenants were theme of 2017

Another year of ‘solid leasing activity’ is forecast

The Austin-area’s office market rolled to a strong finish in 2017, new reports show, propelled by Fortune 500 companies including Facebook Inc., Google, Indeed and HomeAway signing sizeable office leases in the market last year.

Major lease transactions were the theme of 2017, according to the latest office market report from the Austin office of Cushman & Wakefield, a global commercial real estate services firm.

The trend of blue-chip tenants taking up large chunks of space spilled over into 2018, kicking off with Parsley Energy’s commitment to lease 302,000 square feet of office space in a high-rise planned for 300 Colorado St. in downtown Austin.

“With several large additional transactions in the works for 2018… the outlook for Austin seems bright,” the report said. “A steady stream of corporate migration and expansion, in addition to a healthy pipeline of younger start-up companies looking to call Austin home, seems to be the norm. With leasing activity on the upswing and multiple new office developments on the horizon, we can expect to see Austin’s office market continue to strengthen.”

Cushman & Wakefield said 2017 ended with rents for the highest-quality office space (Class A) in the Austin region averaging $39.09 per square foot per year, up from $36.95 per foot in the final quarter of 2016.

The occupancy rate for top-tier office space averaged 90.2 percent, edging down from 91.7 percent, on average, in the fourth quarter of 2016, the report said.

White-collar job growth fuels demand for office space. Cushman & Wakefield said the Austin region wrapped up 2017 much like it began, with job growth continuing to outpace national averages and a jobless rate that is one of the lowest in the country — 2.7 percent compared with 4.1 percent nationally.

“January has already set the pace for the market for 2018,” said Patrick Ley, brokerage principal with ECR | Equitable Commercial Realty in Austin. “With continued large corporate announcements fueling the new construction absorption like Parsley Energy (downtown) and Indeed at the Domain, developers are remaining confident on pre-leasing activity.”

Ley is leasing a newly completed office building in Southwest Austin, The Overlook at Barton Creek, which has 60,168 square feet of space and is seeing strong interest from prospective tenants.

In another Austin market report, global commercial real estate services firm CBRE said the overall vacancy rate in the Austin metro area dropped to a 16-year-low of 8.8 percent. That figure includes all classes of space, Class A as well as second- and third-tier space.

CBRE said developers broke ground in the fourth quarter on an additional 600,000 square feet of new construction, closing out the year with about 2.7 million square feet of new office space under construction.

“With new supply in lockstep with demand, 2018 is looking to be another year of solid leasing activity within Austin’s office market,” CBRE said.

The technology sector continued to account for the majority of new leases, with 32 percent originating from tech firms, CBRE said. Financial and business services made up 29 percent of new leases, per CBRE.



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