Curious how the Texas, and more specifically Austin, commercial real estate market is doing in this “coming-out-of-COVID” climate? Well, we have a first, second, and third place finish in Dallas, Austin then Houston experiencing the lowest vacancy rates of all cities nationwide1. Reason being? These three mega-municipalities all have several things in common: they are less dense and workers are less dependent on public participation. Not surprisingly, San Francisco and New York are at the bottom of the list (having the highest vacancies). Just as significant to understand this statistic, Texas has been the fastest growing State in the US from 2010 to the present. Florida is the second fastest growing State.
Looking closer to home, the Austin downtown office market is in a transitional stage coming off of some space give backs with Parsley Energy, Rig Up, Teachers Retirement System of Texas and Netspend shrinking their staffs due to COVID and putting significant chunks of space on the sublease market, according to Costar Analysts. Thus, vacancies downtown shot up to 15.8% compared to 7.22% a year ago. To counter that, there have been a few recent victories with the likes of law firm Perkins Coie taking a floor at 405 Colorado St. However, vacancies could creep up even higher later this year as about 3 million of new space is under construction, which represents 20% of the downtown inventory.
From an investment standpoint, several out-of-state investment groups such as California-based Kilroy Realty Trust and Washington DC-based Carr Property have bought several large office towers recently, including the new Indeed Tower. This incoming investment activity helps stabilize the financial underwriting for this important and visible class of office product.
Takeway? Texas, and Austin more specifically, are well positioned to handle the growing demand of companies for office space as they increase their staffs to handle the increased business coming out of COVID. That’s good news for the property owners but signals that rental rates will only be going up as demand trends upward. That’s not such good news for the many local businesses struggling with increased costs of product and labor as well as the continued disruption in product supply chains on which they rely.
1Justin Boyar and Paul Hendershot, Costar Analysts