TEXAS SNAPSHOT, NOVEMBER 2007

Austin Office Market

Russell Young

In Austin’s office market, developers are focusing primarily on Class A office space with floor plates of 30,000 square feet and larger, according to Russell Young, vice president, tenant representation group, with Commercial Texas. “With over 2 million square feet on the verge of coming on line in Austin, there are numerous options for larger users,” Young says.

The Domain is a mixed-use project anticipated to have a significant impact on the Austin office landscape, says Young. “With the ability to deliver up to 3 million square feet of Class A office space, The Domain is poised to be a major competitor with downtown,” he says. “It’s proximity to the region’s workforce, housing options, numerous retail and restaurant amenities, access to commuter rail and fewer parking challenges make it very attractive.”

Another significant project, Aspen Lakes, a development of Aspen Properties, is delivering 200,000 square feet of Class A space in the Far Northwest Market. It’s built near Austin’s new toll roads and provides access to the highly populated residential neighborhoods in the Northwest Market. 

Simmons Vedder is delivering a Class A project in Round Rock. The first phase of Frontera Vista will bring 270,000 square feet of office space in two five-story buildings. “Frontera Vista has the capacity to ultimately accommodate as much as 2 million square feet of office space,” Young says. “This project could provide an excellent opportunity for a corporate user interested in the Round Rock area.”

Claydesta Corporation is slated to develop another Class A office building at The Terrace. The new building will be a nine-story, 270,000-square-foot building in Southwest Austin. “The Southwest market is one of Austin’s hottest areas with close proximity to downtown and key executive and professional housing,” Young adds.

As is seen by the number of projects going up in these areas, Northwest and Southwest Austin are hot. According to Young, they are the traditional locations of Class A space because of their proximity to employees and executive housing.

While the majority of office developers currently in Austin have been in the market for a while, Behringer Harvard is a relatively new face. “They entered the market in June 2006 through the acquisition of The Terrace I, II, V and VII,” Young says. “Aspen Properties, in Austin since 2003, also is undertaking several projects.”

On the leasing front, several large spaces have been taken. Late last year Convio leased 67,000 square feet of space at The Domain, and PayPal leased 35,000 square feet at the Freescale Campus in June.

The range for Class A rental rates in Austin sits between $18 to $27 per square foot, triple net, according to Capitol Market Research. Two trends have recently converged to push rental rates higher, says Young: New construction and high acquisition prices. “Price increases have been more tied to these two trends than actual tenant demand,” he says. “With Thomas Properties Group’s recent acquisition of Equity Office Properties Trust-turned-Blackstone Group’s portfolio, many of Austin’s landmark buildings have traded hands in the first two quarters of 2007. A record number of 25 buildings have been sold during the first half of 2007.”

As far as vacancies go, according to Capitol Market Research, the average vacancy rate is 14 percent. “The lowest vacancy rate is in the Southwest Market at 9.5 percent,” Young says. “Downtown is at 16 percent and the Southeast is the highest at 18 percent.”

In the future, watch for the Northwest and Southwest Markets as they are seeing a great deal of product come on line, according to Young. “The big story (longer term) will be The Domain’s impact on downtown,” he says. In addition, white collar job growth is needed to deliver the approximately 2.3 million square feet of new office space coming on line. “Austin is waiting to see how job growth plays out,” Young says.

— Russell Young is vice president, tenant representation group, with Commercial Texas in Austin.

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