Q4 2022 office space report: Austin, TX
Austin is home to major companies on the cutting edge of technology, like Tesla, Dell, and Oracle, all of which play a significant influence on Austin, TX’s office space market.
With employment increasing to 5.4% and unemployment falling to 2.8%, Texas’ capital is experiencing an expanding economy. The sector driving most of the growth is leisure and hospitality.
The population’s growth rate has decreased from 2019 to 2022 but is still positive and double the national average.
As more companies transitioned to a hybrid work-from-home and in-office schedule, the office space market showed signs of healthy gains.
General area overview & demographics
Austin, Texas, is a city in the south-central part of the state with 964,254 people. The racial population demographics for Austin are 59.7% White, 32.2% Hispanic or Latino of any race, 7.3% African American, 4.2% Asian, and 2.6% two or more races.
The economy is diverse and unique, driven by professional services such as finance, business, and information technology; healthcare; education; government; and tourism. The city’s gross metropolitan product (GMP) was estimated at $96.3 billion in 2017, making it one of the fastest-growing economic hubs in the United States.
The city is home to several universities, including the University of Texas at Austin (UT Austin), Austin Community College, Concordia University Texas, and Huston-Tillotson University.
It’s hot and humid throughout the year. Summer typically lasts from June through September, with temperatures sitting around 95°F. Winters are relatively mild, with temperatures ranging from an average low of 40°F to an average high of 60°F.
As a major tourist destination, it offers visitors attractions such as the State Capitol building, Lady Bird Lake and its network of trails, Zilker Park with its botanical gardens and Barton Springs Pool, and many live music venues.
Summary of Austin office space performance in Q4 2022
The vacancy rate for Austin’s office space was 15.8% in Q4, a quarter-over-quarter increase from 15%. Class A remains relatively high at nearly 24%
Net absorption posted a negative 150,200 square feet, yet absorption was still well in the positive for 2022 at 1.6 mill square feet. While Class A vacancy is the highest, it has accounted for nearly all positive absorption.
With only 47% of space available for what was under construction during 2022’s last quarter, Austin’s overall availability sat around 21% at the end of the fourth quarter.
What are office space rents like in Austin?
Overall average asking rents rose to $53.62 per square foot, a quarter-over-quarter increase of about 3%.
Class A increased by 1.6% to $59.21 per square foot, while Class B increased by 4.4% to $37.85 per square foot.
Purchase & leasing activity
Sales volume in the fourth quarter of 2022 for office space in Austin was at $158 million. Most deals were done by private investors, making up over 52% of the buyer transactions and over 66% of the seller transaction.
The Foundry in Austin’s East submarket was sold for an undisclosed price. The property consists of two buildings that total 240,000 square feet.
The volume of signed lease transactions was down compared to 2021. There were 6.7 million square feet of transacted lease space between new leases and renewals in 2022, while 2021 saw nearly 9 million square feet.
Major companies like Whole Foods Market and TikTok subleased office space in Austin, approximately 188,000 square feet and 126,400 square feet, respectively.
Notable Office Space Deals in Austin in Q4 2022
There were several leasing deals for Austin office space this quarter.
- VA Financial Services’ leasing of Met Center Creative Office Park, Building B, for approximately 67,000 square feet.
- Page’s leasing of Indeed Tower for approximately 51,000 square feet.
- Texas Dept. of Emergency Management’s leasing of Chase Park Office Center 3 for approximately 48,800 square feet.
- GetSales’ leasing of 3900 San Clemente for approximately 25,700 square feet.
These are a few among other leasing deals that took place.
New office space development activity in Austin in Q4 2022
With 8 million square feet in construction, Austin had one of the highest levels in the country during the fourth quarter of 2022.
Earlier in 2022, over 4 million square feet were already completed, with 72% of it released.
Of that 8 million in the pipeline during Q4 2022, 53% of that was already released and accounted for 7.6% of inventory.
Market forecast for Austin’s office space market
As the economy improves and becomes clearer in 2023, Austin is positioned to continue strong well into the year.
Investors will want to keep an eye on rising vacancies, negative absorption, slowed leasing activity, and the supply chain potentially outpacing demand.
However, Austin’s resilient economic fundamentals of solid population and job growth are signature hallmarks of market recovery.
Takeaways for office space investors
With Austin expected to continue to be a top-performing market for office space in 2023, the lull in activity could provide investors with the open window they need to get in.
It could take a few quarters before the overall trend becomes positive again.
Stay diligent, do your research, and happy investing.
