Now that the smoke has cleared from the COVID effect of businesses downsizing due to “work at home” policies, investors are re-valuing commercial real estate assets downward to account for the new norm of vacancy rates, which are averaging 25% for Class A buildings and 12% for Class B building. For those owners in the market to sell, that means they are having to accept sale prices 25% to 45% below their asking prices. These lower prices haven’t been seen for over 6 years. Several examples include the Bridgepoint Office Buildings at Hwy 360 having sold for the low $100’s/ft. One of the Quarry Lake Office Buildings at Braker Lane was reported to have also sold in the low $100’s/ft. That puts the capitalization rate (return on investment) for those transactions in the 7%+ range, which for the Austin market is high (good for the buyer). The high potential return comes with an immediate downside with the new owners inheriting assets with elevated vacancy. They are betting at some point, sooner than later, that there will be a demand to lease their office buildings.
Although this holds true for larger commercial real estate assets over 100,000 sq.ft., the smaller commercial real estate assets (particularly those under 10,000 sq.ft.) are trading for a lot closer in price to what they were valued at pre-COVID. The reason for this is due to their asset size and the ability of more investors/owner occupants to purchase them. In some cases, though, I do see situations where a seller of a smaller asset who is forced to sell, will take a discount on the sales price. For smaller assets, particularly in the Southwest Austin and South Austin markets, I am seeing asking prices ranging from $315/ft to $510/ft. That puts the capitalization rate for those transactions in the 5.5% to 6.5% range, which is about what this type of asset has been generating over the last decade. Expect to see sellers willing to discount their asking price only around 4% to 6%.
If you are interested in buying or selling a commercial real estate asset, give me a call at 512-736-5933 or email me at oddo@toweratx.com
Source: Costar Capital Market Report 2025
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