Welcome to my June edition of my Commercial RE newsletter. Here’s the current trend of commercial real estate space in Austin, Texas:

Office Space

• High vacancy, declining absorption:
  • Q1 2025 saw a net absorption of –372,714 sq ft, a sharp reversal from positive absorption in Q4 2024.  This means more space is being built that is being leased.
  • Vacancy stands around 24–28%, up from about 22–24% in mid 2024 .
• Leasing activity is mixed:
  • While leasing velocity dropped ~9% quarter-over-quarter, it remains up ~29% year-over-year. This means deal flow is steady but reduced some.
  • Sublease space has slightly decreased but still remains substantial (~4–5 million sq ft).  This suggests a weakness in deal flow and companies not needing, or wanting, to expand.
• Rents continue climbing:
  • Average full-service asking rents rose to ~$45–46/ sq ft, with Class A at ~$52 and CBD commanding ~$60.

In short: there’s an oversupply of office space, leading to elevated vacancies and negative absorption, yet rent remains resilient thanks to demand for prime locations and the fact that property owners are not heavily leveraged on their properties and are able to handle less incoming rent.

Construction Pipeline

• A large development backlog: About 3.6 million sq ft is currently under construction (≈3.7% of total stock), until slowing in Q1 2025.
• Delivery vs. new starts: 495,000 sq ft delivered in Q1 2025 (higher than the prior quarter), but new project starts dropped nearly 31% YoY.

That creates an imbalance: new supply is arriving even as demand remains weak. This should cause rents to come down which would bode well for Tenants.

Industrial & Data Center Space

• Industrial leasing remains healthy:
  • Q1 2025 industrial net absorption hit +1.2 million sq ft, with vacancy improving to 19.3% and rents rising modestly to $13.47/sq ft.
• Massive data center growth:
  • San Antonio–Austin data center capacity has quadrupled since 2020, with ~646 MW built, 664 MW under construction, and 1,229 MW planned.

Market Summary

• Office: Oversupplied, with slowing demand, rising vacancies—but rents hold up.
• Industrial: Solid and healthy fundamentals. Rents holding steady.
• Data Centers: Booming due to AI & cloud needs, though facing power-infrastructure constraints.

Outlook

1. Office will likely remain soft until leasing picks up and new supply slows. Adaptive reuse (e.g., residential conversion) has been discussed but lacks incentive and timeline .
2. Industrial should stay stable with continued demand.
3. Colocation/data center demand is expected to stay strong, though hampered by power grid capacity unless utilities expand.

If you would like a deeper dive into any of the trends discussed, call me at 512-736-5933 or email oddo@toweratx.com.

Source: Costar 2025 and MySanAntonio.com