Q2 2012 Austin, Texas Office Market Trends

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Q2 2012 Austin, Texas Office Market Trends

Although employment and population have grown solidly since, the 40.3-million-square-foot Austin general purpose, multi-tenant office market is still shaking off the effects of the tech bust following the year 2000. The vacancy rate was 19.4% in the second quarter of 2012, down 10 basis points for the period and 120 from a year earlier, but still elevated. The rate reached 19.2% in July. Net absorption was 248,000 square feet for the first half of the year, with plus 247,000 for Class A space and plus 1,000 square feet for Class B/C. The respective second quarter vacancy rates were 18.8% and 20.3%.

Vacancy has remained elevated despite limited new supply since the start of 2009 (and none since the start of 2011.) Currently, however, more than 1 million square feet is under construction with 762,000 square feet in planned projects with development schedules announced. In the medical office category, moreover, 323,600 square feet has completed thus far in 2012 leaving 272,500 under construction. Although Reis predicts net absorption will increase to about 800,000 square feet in 2013 and more than 1 million thereafter, the decline of vacancy is forecast to be slow. The rate is forecast to remain above 15.0% until 2016.

Rent gains are modest. During the second quarter the average asking rent rose 0.5% to $25.92 psf with the average effective rent up 0.4% to $21.04 psf, with the year-over-year increases at 2.1% and 2.4%, respectively. Office rents are weak nationally as well, and the quarter’s asking rent gain was actually the third highest among the top Reis submarkets. Rents edged up a penny by both measures in July, and modest increases of 1.6% asking and 2.1% effective are forecast for all of 2012. Larger gains of up to 5.0% for the effective average will follow from 2013 to 2016.

NAI REOC reports a second quarter vacancy rate of 16.4% and an asking rent of $26.22 psf for 42.5 million square feet in metro Austin.