- By Shonda Novak American-Statesman Staff
One of the world’s fastest-growing commercial real estate brokerage firms is staking its claim in Texas, with the Austin area among the targets of its aggressive national growth strategy.
Over the past two years, Newmark Grubb Knight Frank has grown its Central Texas presence to more than 40 people. Nationally and locally, the firm is landing major leasing assignments and is continuing to recruit top talent in its service lines. Those include office, industrial and retail leasing; property management; and investment sales of office, retail, industrial, land and apartment assets.
With three offices in Austin, Newmark said it plans to consolidate with a sizeable footprint in 2017.
In Central Texas, Newmark is working on lease deals involving more than 500,000 square feet of space, including representing Seton Healthcare Family in its real estate pursuits across more than 100 clinical locations and four teaching hospitals that will be training sites for the University of Texas Dell Medical School.
Industry veteran Jesse Weber opened the firm’s Austin office in October 2014, relocating from Greenwich, Conn., to become Newmark’s senior managing director for Central Texas
Ryan Bohls, an Austin native and 10-year industry veteran, joined Weber in July 2015 to grow Newmark’s tenant representation division. (Bohls is the son of American-Statesman sports writer Kirk Bohls.)
We asked Weber and Bohls to talk about Newmark’s growth in Austin, the commercial real estate market and other topics. Here are their responses, edited for space and clarity.
American-Statesman: Why is Newmark’s Austin expansion important?
Weber: Having a strong Central Texas presence is essential given our position as a market leader across major metropolitan areas nationwide, most specifically Silicon Valley and New York City. Austin is the millennial city, and long has been the fastest- growing metro in the U.S. We identify with heavy investment in technology and growth.
What trends are you seeing as millennials become a more dominant presence in the workplace?
Bohls: By 2030, millennials will constitute 75 percent of the workforce. This generation is a demographic demanding plentiful on-site amenities and creative ways to implement a collaborative work environment without losing productivity.Balancing the desires of a young workforce… without sacrificing efficiencies is becoming especially critical as rents rise alongside the demand for talent.
What does BGC Partners, a sister company to Cantor Fitzgerald, bring to the table for Newmark?
Weber: Our growth strategy is tied to acquiring the top talent in every market and having access to significant funds to make those acquisitions. Beyond the acquisitions, being the commercial real estate arm of BGC Partners uniquely positions our firm to offer our clients in-house real estate brokerage, debt/equity financing and investment banking.
What are you seeing in terms of the types and sizes of companies that are expanding here?
Bohls: High-tech still dominates Austin both from a local organic growth perspective and an inbound destination for national relocation. The obvious notable players like Google, Apple, Facebook, Oracle and Amazon continue to build on to their existing positions in Austin, recognizing the lower cost of living, access to talent and cost of doing business.
From a local perspective, the startup scene remains vibrant with many Austin companies continuing to grow. One company that we continue to have a watchful eye on is Indeed, which has added nearly 300,000 square feet in the last 12 months and continues to search for additional space.
American-Statesman: What are rents doing in downtown Austin?
Bohls: Average annual rental rates for the top 10 downtown Class A office buildings have risen more than 220 percent since 2009 Since 2014 alone, those rents have swelled 40 percent. That’s an astounding statistic and excludes building operating expenses, which increase substantially when a property trades hands, due in large part to the county appraisal district reassessing the site’s value. That, in turn, increases property taxes, which get passed through to tenants.
What are the ramifications for tenants?
Bohls: My concern is the effect on local homegrown businesses that can no longer afford rents in the central business district and get pushed into suburban submarkets as a result. With so many strong national companies shopping Austin sites for satellite offices or wholesale relocations, the barriers to entry have become too high for local businesses to compete for similar sites, not just downtown. The result is property owners looking for exorbitant security deposits or letters of credit that hamstring technology startups’ resources to allocate for new hires or research and development.
When do you see the market starting to soften?
Weber: Traditionally real estate runs on a seven-year cycle. The post-election economy is an external factor that has both landlords and tenants nervous.
In 2015, 3.7 million square feet of office supply (was added to the Austin market). That is a tremendous influx of new space considering historical absorption has been less than 2 million square feet annually. Last year, however, absorption was still able to significantly outpace supply, which contradicts most analysts’ forecasts that we would see vacancies increase and market rents suppress. 2018 will be the barometer for Austin’s capacity to become a first-tier office market, with seemingly every new office development set to deliver and a swath of credit leases expiring. Fundamental real estate principles would dictate a soft spot in the market, but if the last few years have been any indication, Austin behaves as its own point of reference.
This article has been updated to correct an error. BGC Partners Inc. is a sister company to Cantor Fitzgerald, having become a separate publicly traded company in 2008. BGC Partners does not own Cantor Fitzgerald.