In the last three months, Austin’s skyline kept growing, as developers finished 2.1 million square feet of new office space. Much to their chagrin, almost all of it remains empty.
The office vacancy rate has hit a record 25.2 percent, as the city added more space than it has in any other quarter, according to JLL. Some 158,400 square feet more space came on the market than was taken. The new buildings total more than three times the five-year quarterly average for deliveries.
Two projects were the main culprits. Highpoint 2222, Karlin’s renovation of the old 3M campus, added 1.2 million square feet to the Far Northwest submarket. Jay Paul Company’s Springdale Green added another 833,000 square feet in East Austin, just past Airport Boulevard. Together, they account for a large part of the 2.6 percent quarterly increase in direct vacancy.
“That caused a huge jump in vacancy,” said Gabrielle Jansen, research manager at JLL in Austin. “We have another 1.2 million square feet that will deliver this year, so we will probably see peak vacancy this year, or potentially next year.”
For tenants who are looking for space, concessions are on the rise and reaching levels rarely if ever seen in the market. Some landlords are offering full finishes at costs of up to $200 per square foot, according to Russell Young, a top commercial broker at JLL in Austin.
“There has not been a better time for a tenant in Austin to strike a deal. [I haven’t seen] in 20 years, really, the types of opportunities that are available,” Young said.
East Austin’s Class A market is in a weird place: it has the highest vacancy of any submarket at 52 percent, and the second-highest ask, just below CBD, at $66.31 per square foot. After years of being seen mostly as a residential neighborhood, a gentrification wave persuaded developers to flood the office market on the East side with new projects. As those projects open, tenants have yet to return the enthusiasm.
Sublease availability improved somewhat, as about 100,000 square feet came off the market. That said, Austin’s tenants still have roughly 5 million square feet of space up for sublease, and part of the drop in availability came from subleased space turning to direct vacancies.
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As developers work through the pipeline of construction that began before the slowdown in Austin’s office market, they appear to be getting the picture. No new spec offices broke ground last quarter, and most of the pipeline’s growth traces to Apple’s long-running campus development in north Austin. Altogether, developers have 3.7 million square feet under construction, with 53 percent of it pre-leased.
Big tech firms led the city’s last office boom, with companies like Meta and Google taking full buildings for growing workforces in the capital city. The return-to-office push has not been as strong as early supporters hoped, though, and tech companies are no longer the leasing force they once were.
“Big tech is what has been driving the Austin real estate market,” Young said. “And it’s pretty quiet.”