January 30, 2020
Commercial real estate companies were in agreement on one thing when discussing Austin’s Q4 2019 office metrics. Namely, a lot of construction is going on. That, and vacancy rates increased because of it.
CBRE pointed out that “the final year of the last decade saw a record influx of delivered construction to the Austin market,” thanks to an “abundant development pipeline.” While absorption was flat in Q4, “the annual absorption of 2.1 million square feet was a mere 7,000 square feet shy of setting a new record,” CBRE analysts said. The increase in vacancy, analysts noted, was due to both new deliveries and tenant flight to quality.
Speaking of records, NAI Partners pointed out that “A record-breaking 10.4 million square feet of office space is under construction . . . with almost one-third . . . in the Central Business District.” Still, even with the space that is under construction, representing almost 12% of the total inventory “56% has already been spoken for,” NAI Partners analysts said. Meanwhile, JLL pointed out that several projects, such as Domain 12 and Offices at Saltillo, “delivered this year fully leased by technology giants.”
None of the firms seem to be worried about overbuilding or oversupply, however. According to Newmark Knight Frank, Austin’s full construction pipeline is “ready to handle future demand fueled by population growth and expansions from the ever-growing tech industry.” Furthermore, sustained rental growth, due to continued tenant demand, will likely continue well into 2020, NKF added.
JLL agreed, noting that with “significant growth over the last several quarters,” the Austin office market’s rental rate growth “is expected to continue as the availability of space concentrates in high-quality new construction product.”
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