Welcome back to the Austin commercial real estate market update! It’s been a few months since I discussed rental rates, vacancies, and other key metrics, so let’s dive in.
Office Market
Tenants are increasingly drawn to newer, amenity-rich office buildings, a bright spot in an otherwise slow-expanding market. Since early 2024, occupied office space has grown by 250,000 sq.ft., primarily in these newer properties. Landlords are offering substantial incentives to attract tenants, including 3 to 9 months of free rent on 5 to 10 year leases.
Meanwhile, older buildings have seen a 200,000 sq.ft. decline in occupancy this year. This trend benefits tenants, as rental rates in these properties are softening, along with more free rent offers.1
Industrial Market
The industrial sector has experienced rapid growth, with 13 million sq.ft. added annually for the past three years, compared to only 3 million sq.ft. per year from 2015 to 2019. Tesla’s manufacturing expansion and Samsung’s upcoming semiconductor plant have driven this surge, as their suppliers move or expand into Austin.
This oversupply has led to a 1.6% drop in rental rates, which is expected to continue until mid-2025 when the market is expected to stabilize.2
Retail Market
Four words define the current retail space market: strong demand, limited supply. The Austin metro area, particularly Georgetown and Hays County, is experiencing fast population and income growth, thus attracting retailers.
Despite the addition of nearly 3 million sq.ft. of retail space, vacancy remains low at 4%, while rents are climbing at 4.4%, far outpacing the 2.4% national average. This environment is increasingly challenging for local “mom and pop” retailers, who struggle to compete with larger chains.
Summary
The migration of businesses and workers to Austin remains steady. The office, industrial, and retail sectors are stabilizing, with continued growth in size and rental rates expected.
My advice to anyone considering opening or expanding a business in Central Texas? Go for it. After over 30 years in this market, I’ve seen its resilience and dynamism firsthand, and I expect this to continue for years to come.
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For more information or any questions you might have, please call or email me at 512-736-5933 or oddo@toweratx.com.
Source References:
1 Costar, Danny Khalil and Israel Linares, August 12, 2024, “Tenant Demand Concentrated Among Highest Quality Office Buildings in Central Texas”
2 Costar – Industrial Market Report and Retail Market Report
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