Austin office market keeps humming along


Highlights

Rents for first-class space hit record of $39.93 per square foot.

Brokers: Market fueled by companies locating or expanding in the region.

The Austin-area office market kept rolling in the first quarter, with rents for top-quality space at a record high and the occupancy rate also up from a year ago, the latest figures show.

In its latest quarterly report, commercial brokerage Cushman & Wakefield Austin said rents for Class A space rose, on average, to $39.93 a square foot per year. That’s an all-time high, and up from $37.86 per square foot in the first three months of 2017.

The occupancy rate for Class A space averaged 90.3 percent, up from 90.1 in the year-ago quarter, the report said.

For all types of office space, the occupancy rate averaged 89.5 percent in the first quarter, down from 90.2 percent in the year-ago quarter. Rents overall averaged $36.39 per square foot, ticking up from $35.45 a year ago, according to Cushman & Wakefield.

In another report on the local market, commercial brokerage CBRE said that although only two new office buildings opened in the first quarter “the development cycle remained blistering as an additional 700,000 square feet of new projects kicked off this quarter, bringing the under-construction total to 3.4 million square feet.”

CBRE said the newly launched projects include East 6, which is at 2010 E. 6th St. and will have 115,000 square feet of office space; the new headquarters building for South by Southwest at 1400 Lavaca St., which will have 145,000 square feet of space; and Foundry at 310 Comal St., which will have 75,369 square feet of office space.

“The market continues to see healthy growth on rental rates and deal velocity,” said Troy Holme, executive vice president in Austin with commercial brokerage CBRE. “We are still seeing certain industries, specifically tech, engaging and consummating deals for expansion. Inbound business (companies looking to expand into the Austin market) has also continued to be robust.”

Last year, the local office market saw a trend of blue-chip companies signing big office leases, including for buildings still under construction. Fortune 500 companies including Facebook, Google, Indeed and HomeAway were among the companies signing significant leases in 2017.

Another large deal involved 3M, which signed leases for nearly 300,000 square feet of office and flex space in two buildings that are under construction in Northeast Austin, said Mark Emerick, a senior vice president with CBRE in Austin. One building, called Parmer 3.3, is on Center Ridge Drive and the other, called Parmer 7.2, is on Center Ridge Drive and East Howard Lane.

This year kicked off with a blockbuster announcement that some local brokers say has set the pace for 2018: Austin-based Parsley Energy, a rapidly growing oil and natural gas company, signed a lease to occupy all of the office space in a 31-story high-rise planned for a site that formerly housed Sullivan’s Restaurant.

The project, to be built at an estimated cost of $175 million, is expected to break ground in December and be completed in December 2020. Called 300 Colorado after its address, Parsley signed a 12-year lease for 302,000 square feet of space in the proposed tower, which will have 309,000 square feet in total.

The developers are Cousins Properties, partnering with Riverside Resources and Ironwood Real Estate.

In its year-end office report, Cushman & Wakefield said that several large lease deals and multiple new office developments are on the horizon for 2018.

In a flier sent to commercial brokers this month, Brandywine Realty Trust said “We’re ready to rumble” on its high-rise office tower planned for 405 Colorado St. downtown. The notice said construction drawings are completed, a site development permit is in hand from the city and a building permit has been submitted to the city. It said the estimated construction timeline is 22 months.

Brandywine has not said when it plans to break ground.

Holme said that “the drive by existing and new companies to either grow or settle in Austin” point to continued strength in the market.

“We believe that Austin is going places never seen before,” Holme said “Even if there is a hiccup, large or small, in the overall national economy, Austin is perfectly positioned to withstand a downturn due to the diversity of industries, favorable state taxes and incentives, and the environment Austin has to offer.”



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