Remarkable economic growth in the Austin area is driving all things from residential real estate, population increase, commercial real estate growth and an incredible increase in office rents in recent years. As a result, the Austin skyline is continually evolving as developers race to create office and housing products in the Central Business District (CBD) in Downtown Austin. One long-term result of the commercial downtown development and the migration of top companies moving from older, smaller spaces to brand new, larger digs is the emergence of earlier, mid-stage companies in the CBD.
Austin Downtown Development
Data from a report by CoStar Group Inc.’s Central Texas economist, Sam Tenenbaum, shows that over the last 13 years, Austin saw office rents downtown increase by 80%. In the last year, Austin’s metro saw 5.2% rent growth due to low vacancies and an extremely low unemployment rate hovering around 2.6%. Tenenbaum said that because of the incredible economic growth, Austin is currently building the most office space in the country based on the percentage of inventory. He shared the information with a group of real estate professionals Feb. 12 at Crew Austin and CCIM Central Texas’ fifth annual Real Estate Summit.
A third of the office space under construction is in the CBD, according to a fourth-quarter report from NAI Partners. Data from that report shows that class A office space in the CBD averages $54.32 a square foot, which is a 7.4% increase from a year ago. Close to half of the office space under construction is pre-leased and some buildings are completely leased out before construction completes. Tenenbaum points to the tight labor market and rising rents as the impetus behind development in Austin.
“If I am a company and I want to hire the best and brightest out of UT, how am I going to get them to pick me over someone else? Well, I have to offer not only the best location in the urban core, but it also has to be the best building, too,” said Tenenbaum. “So, we’ve seen incredible performance in particular in the class A office side …. All of these companies have to compete with 2.6% unemployment.”
Long-Term Implications of Lightning Office Growth
At the real estate summit, Tenenbaum was asked about the impact that the Army Futures Command will have on Austin. An ABJ report quoted the economist as possibly having a positive impact on downtown office occupancy rates. That’s because the purpose of the Futures Command is to predict the obstacles that will confront American soldiers in the years to come and provide the tools they’ll need to surmount them.
“I think the long-term implications are we see more office space taken by earlier or mid-stage companies that are supplying things to the U.S. government,” he said. “How fast that happens is a question, but as the Army plans for the future and tries to think about what kind of technology they need this is the perfect city in the country to do that … in particular given our strategic location between two of the largest military installations in the country and also being in the middle of the country ….”
Tenenbaum’s prediction makes for a hopeful outlook on downtown office occupancy and the opportunities that fledgling companies might have if they work with Futures Command. Austin’s CBD could maintain an atmosphere of new ideas mixing with more established technologies. Downtown could continue to be a place where innovation and experience come together to help fledgling businesses move into the next phase of their business. It will be centered in a forward-thinking city built on a diverse, stable economy and by some of the brightest and well-educated minds in the country.
10 Towers Coming to the Austin CBD
There’s so much happening in the CBD and not all of it is commercial development. There’s a mix of commercial, residential and retail coming to Downtown Austin. Here are some of our favorite towers coming to the Austin skyline over the next few years.
1. UT Tower at Innovation District
Austin’s emerging “innovation district” is being developed on the site of the former Brackenridge hospital campus. There, the University of Texas at Austin plans to build a $160 million, 17-story office building that will serve as the flagship of the innovation district. The 324,000-square-foot tower will be designed by Gensler and will rise on a portion of the former Brackenridge hospital campus. Dell Medical School will take up most of the tower but some space will be leased to private businesses and organizations.
2. Block 185 (A New Google Tower)
On the banks of Lady Bird Lake is a tower being built in the shape of a large sail. IT’s one of the biggest and most distinctive towers announced last year. The 35-story Block 185 tower is rising near the corner of Cesar Chavez and Nueces streets. At 723,000-square-feet, the tower with a sail-like design is 100% leased by Google Inc.
Google expects to begin moving workers into the building sometime in 2023. Though the tower can accommodate about 5,000 employees, it’s unclear how quickly Google may fill the building.
3. Indeed Tower
Indeed Inc has leased a majority of the space inside an exciting new development at the corner of Sixth and Lavaca streets. Developed by Trammell Crow, the 36-story building melds historic with modern in this unique office tower rising at Block 71. According to the ABJ, it’s about 65% leased. Indeed Inc. is taking the top 10 floors of the tower. Investment firm Brown Advisory and the Teacher Retirement System of Texas have also picked up space.
A historic post office built in 1914 will be repurposed into space for multiple restaurants. Known as the Claudia Taylor Johnson Hall, the space is going to be incorporated into the design of the tower. The Indeed tower is expected to deliver to tenants in April 2021.
4. 44 East
Although construction just started in the 4th quarter of 2019, the ABJ reports that 30% of 44 East pre-sold. The tower from Canada-based developer Intracorp Projects Ltd. will feature 49 floors of luxury condos that will showcase the views of Lady Bird Lake. Page Southerland Page designed the tower and the units. Michael Hsu Office of Architecture designed the common areas and amenity floor. Flintco LLC is the general contractor.
5. The Travis
Austin locals may remember the former Villas on Town Lake condo community. Dallas-based Genesis Real Estate Group is planning to build two towers at 80 Red River St. where the condo community used to sit. One tower will be apartments for rent and the other will have for-sale condos, hotel rooms and a ground-floor coffee shop.
Austin homeowners and investors who are looking for an opportunity to own a short-term rental may have the perfect solution with the Natiivo development. The tower is near the Rainey Street Historic District at 48 East Avenue. It will feature 33 floors and 249 for-sale units. What’s unique about this development is that when units aren’t used by the owners, they will be made available for rent through Airbnb. Natiivo management will help homeowners make their units available for renters.
More than 50% of the units have been reserved so far, according to information that ABJ obtained from developers Newgard Development Company and Austin-based Pearlstone Partners.
7. 6X Guadalupe
The corner of Sixth and Guadalupe streets will soon be the site of downtown Austin’s tallest tower. An Extended Stay America hotel at the corner of Sixth and Guadalupe streets has been demolished to make way for the 66-story office and residential tower. It will feature 349 apartments, 589,661 square feet of offices and 11,675 square feet of retail space. The huge tower will take a few years to build. Vertical construction could start by early 2020.
8. 17th & Guadalupe
On the corner of 17th and Guadalupe Streets is expected to be a 28-story condo tower. The 117-unit tower from New York-based Reger Holdings LLC will have ground floor retail. Construction is slated to start in the first quarter of 2020, said Bryan Cady, co-founder of Den Property Group, to ABJ. Den Property Group will sell the condo units. The developer is hoping to secure a neighborhood market with a coffee shop and art gallery.
9. Block 16
A 42-story office tower could ruse just west of the Austin Convention Center. The high-rise at 320 E. Second Street will sit on a half-block that currently houses P.F. Chang’s, Fleming’s Prime Steakhouse and Cafe Blue. The restaurants will be demolished to accommodate the new tower. Gensler is the tower architect, but no renderings have been released yet.
10. Railyard site
Another well-established downtown condo has recently been purchased and will likely become the site of two skyscrapers. The Railyard Condos are one of downtown Austin’s oldest developments, so the new project will make much better use of the space along two half-blocks along Fourth Street, between Brazos and Trinity streets.
California-based Karlin Real Estate purchased the Railyard condominiums on Oct. 30 for $104 million, likely a record land sale for Austin in terms of the price per square foot.
Although no formal plans have been proposed, it’s expected that a 1.7-million-square-foot campus including an office tower and an office/residential tower will be built. The concept has been floated by Karlin, but the firm isn’t speaking publicly about its plans according to the ABJ.
No plans for the site have been submitted to the city of Austin for approval either, so it will be a year or longer before a groundbreaking occurs.
You can visit Austin Business Journal for more exciting towers coming to Downtown Austin.
For more information on these developments, please reach out to one of our Austin real estate strategists for help. We can collect development and neighborhood information to send you. We can also help you determine if a purchase in one of these developments fits in your 2020 real estate strategy.
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