Austin commercial real estate ended 2019 strong and is likely to continue to strengthen in 2020, according to data from a report from global real estate services firm Cushman & Wakefield. Throughout the Central Texas region, job and population growth have been driving demand for office space. The trend is likely to continue throughout 2020 as corporate relocations and expansion in the Central Texas region continues.
In the report, Jeff Graves, director of research in Austin for global real estate services firm Cushman & Wakefield, wrote that Austin’s office market “wrapped up 2019 and the decade much like it began — with job growth outpacing national averages and an unemployment rate that remains one of the lowest in the country at 2.5%.” Job growth in the Central Texas region is below the national average of 3.6%.
Rents for top-tier office space in Central Texas averaged $44.14 per square foot per year in the fourth quarter, Cushman & Wakefield said. Although that’s a year-over-year increase of 7.4%, it’s lower than the all-time high of $44.18 in the third quarter of 2019. Overall asking rents were pushed to a record high of $39.21 per square foot as a result of last year’s economic growth. On the occupancy side, the region’s office space was 92.3% full on average in the fourth quarter, up from 90.6% at the end of 2018, Cushman & Wakefield said.
Central Texas Tech Growth
It’s become clear that the Central Texas region has established itself as a world-class tech hub. Big tech companies like Facebook, Google, Amazon and Indeed are actively expanding their presence in the region. Apple is currently underway on a brand new headquarters that will bring thousands of new jobs to the Central Texas area. This trend is creating job growth in tech and other industries that will likely continue for some years.
In fact, it’s likely to be the engine that drives commercial real estate demand for some years. Kevin Granger, executive managing director for Cushman & Wakefield Austin, explained that the tech sector and the service companies that support it “will continue to shape the future of Austin’s office market.”
“Austin remains one of the fastest-growing metros in the country and we expect that trend to continue,” Granger said.
Tim Donohue, a first vice president at global commercial real estate services firm CBRE, said Austin continues to see population growth from coastal and northern cities, “as well as a number of job openings in several high paying sectors — tech chief among them.”
“As a result, we predict that the Austin office market will continue to perform strongly in 2020,” Donohue said.
Expected Growth in Commercial Real Estate
Another report from CBRE confirms the growth outlook from Cushman & WAkefield. In the CBRE report, it’s expected that 2020 should be another year of growth in office-using jobs (such as tech, professional, legal and business services). In that situation, it would inevitably lead to another year of higher office occupancy and rents.
It’s also expected that global tech hubs like San Francisco, major metro areas in Texas — including Austin, Dallas and Houston — and high-growth Southeast cities like Charlotte and Orlando will again be among the top markets for percentage growth in office-using jobs, according to CBRE’s analysis.
Austin is expected to see the largest year-over-year growth — 2.6% — in office-using jobs, ahead of San Francisco (2.5%); Dallas (2.1%); Houston (1.9%) and Orlando (1.7%).
“In the office sector, Austin has been consistent, year-over-year, at growing rents, keeping vacancy rates low and delivering high-quality new developments pre-leased to market,” Troy Holme, CBRE executive vice president in Austin, said in a news release. “It’s not surprising that the forecast for Austin is extremely bright and we expect that technology companies and professional firms will still drive the demand for more office product.”
Downtown Austin Developments
Commercial real estate in downtown Austin is leading growth for the sector in Central Texas. Currently, a 66-story tower is underway at West Sixth and Guadalupe streets that will have almost 590,000 square feet of office space. It will also feature 349 apartments and retail space.
Google will occupy an entire 35-story office tower that is under construction at West Cesar Chavez and Nueces streets that will have 790,000 square feet of space.
Other downtown office buildings under construction include 300 Colorado, a 31-story that Parsley Energy will lease, and 405 Colorado, where the global law firm DLA Piper will lease the top four floors of the 25-story building.
“With vacancies downtown below 6% and pre-leasing of new construction over 70%, the health of the Austin central business district is very strong,” Granger said.
Downtown’s average overall rental rate of $56.40 per square foot, for all classes of space, was the highest across all parts of the region in the fourth quarter, Graves said. The average rate for top-quality space downtown was the priciest in Austin, at $60.48 per square foot, a year-over-year increase of about 4%.
“As demand for space continues and more businesses make their way to Austin, it’s likely asking rates will maintain their upward trend,” Graves wrote.
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