With 2021 behind us, let’s look at where the commercial real estate market is and where I think it will be as it moves deeper into 2022.
Nationally, 2021 was not particularly kind to the commercial real estate market. Primarily because of COVID and corporations desire to accommodate their employees concerns for social distancing and wanting to work from home, at least part time. That caused smaller companies, in some cases, to abandon leases altogether, while larger companies mothballed space. This created an increase in supply and, thus, higher vacancies causing rental rates to drop primarily in office space and, to a lesser degree, industrial product types.
However, Austin, like in so many cycles before, was not impacted in the same way as most of the national markets; mainly because of the desire of many high tech companies to be here. For the office market, thanks to companies like Amazon, Tesla, Oracle, Google, Facebook, Apple, etc., the rental rates weren’t nearly as impacted. Over the past 18 months, these companies and others have consistently not only held space they already had, but have added to their footprint, planning on the future growth of their companies that will occur right here in Austin. To bring that point home, Meta Platforms, parent company of Facebook, just announced they are leasing over 500,000 ft in a new office tower at 6th and Guadalupe in downtown Austin to house some of the over 2,000 employees they expect to have in Austin by 2023. The demand for office space is keeping up relatively well with the supply, with the anticipated delivery of over 7M sq.ft. to the market within the next 18 months. This supply and demand dance is keeping office space vacancies hovering at around 13.5%. The good news for tenants, at the moment, is that rental rates have only increased around 1.3% over the last 12 months. I expect that trend to continue with the current mindset of companies and their desire to continue to allow employees to work from home part time.
On the industrial market in the Austin area, the scenery is similar to the office market in that the national scene has been weaker overall than our local market. Distribution is the exception because of companies like Amazon and FedEx that are gobbling up warehouse space, especially at distribution hubs like Dallas, Memphis, Houston, Detroit, Cincinnati, Los Angeles, and Chicago. Again, though, Austin does not follow the national scene and its weak market, other than distribution space. The Austin industrial/warehouse market has stayed strong through COVID. Corporations want to be here. For example Tesla, taking 5M sq.ft., Amazon taking over 4M sq.ft., regional companies like Elliot Electric and Try-Supply to name a few. There is currently about 11M sq.ft. under construction with over half of that already committed. That explains why the vacancy rate is only 4.3%, the lowest since pre-pandemic times with rents having increased a whopping 9.6%. I expect this trend to continue because of the continued strong demand for existing and new companies needing space and because of the lag in getting additional product to market.
On a side note, because so many corporations have stayed with a hybrid work/home environment for their employees, many of them do not need all the office furniture they own. So many office furniture liquidators are reporting a glut of used chairs, tables, file cabinets and such that they can’t sell. Many are ending up destroying thousands of these items. This does create an opportunity for companies needing good quality, used office furniture at a very competitive price.
Wishing you a prosperous 2022 and, as always, if you have any questions about commercial real estate, do not hesitate to contact me at 512-736-5933 or email@example.com.