OFFICE BOOM: Rents hit record high as Austin-area office market surges

Office rents in Central Texas reached an all-time high in the first quarter as the market continued on its upswing, new industry figures show. And local office brokers say they expect the market to remain strong this year amid anticipated continuing job growth.

In the first three months of this year, rents for top-tier office space (Class A) averaged $41.83 per square foot per year.  That's their highest level on record, and up from $39.93 per square foot a year ago, according to real estate services firm Cushman & Wakefield, which tracks the Austin-area office market.

The region's office space was 90.3 percent occupied on average in the first quarter, unchanged from the same quarter last year, according to Cushman & Wakefield.

Job growth drives demand for office space, and the Austin market continues to generate jobs, including many in the tech sector, Cushman & Wakefield said.

In another quarterly report, real estate services firm CBRE said that "robust demand continues to push asking rents to record highs." CBRE said the gross asking rent of $37.62 per square foot, for all classes of space, set a record high for the Austin office market.

Across the region, construction is at an all-time high, with 5.6 million square feet of new office space underway amid strong — and growing —demand from tenants, commercial real estate firms say.

"The amount of office product under construction this quarter is remarkable," said Holliday Hinckley, a director with Cushman & Wakefield. "Not only is this a glimpse into the ever-changing skyline but also a solid indicator of the impressive strength of the Austin market.”

Several high-profile office towers are under construction, in line to be occupied by tenants including Google, Facebook and Indeed.

Google has signed leases for an entire 35-story building under construction downtown, and also for the entire seven-story office building in the Plaza Saltillo project in East Austin. Indeed has signed leases for the top 10 floors of a 36-story office tower Trammell Crow Co. is building downtown, as well as for the entire 11-story Domain Tower in the mixed-use Domain development in North Austin.

On top of those leases, Cushman & Wakefield reports that Indeed has leased all of Domain Gateway,  a five-story building with 183,911 square-foot on the east side of the Domain.

Also at the Domain, Facebook will be leasing an entire 17-story, 320,000-square-foot building currently under construction, with that lease being the largest one signed last year in the Austin market. Amazon has signed a lease for about half of Domain 10, a 15-story tower with about 300,000 square feet that is under construction at the Domain.

Given Austin's strong economy and reputation for quality of life, it should be no surprise that some of the largest companies in the world —Google, Facebook, Amazon, Indeed — want to be here, said Kristi Svec Simmons, a principal with Aquila Commercial in Austin.

"When they think of cities that best meet the needs of their employees, Austin is at the top of the list," Simmons said. 

In its monthly Austin market snapshot for March, commercial real estate brokerage NAI Partners said that "large leases dominated in 2018, and all indications point to that trend continuing in 2019."

"There has been 1.5 million square feet of leasing activity year-to-date, up 75 percent from this time in 2018," NAI's report said.

In 2018, Austin saw 136 tech companies relocate or expand in the area with plans to create close to 18,300 jobs, NAI said, citing research by CoStar, a commercial real estate information company.

Simmons said that in her 18 years in commercial real estate, "I have never seen the amount of activity nor have I seen the size of companies be so substantial. There was a time when a 25,000-square-foot company was 'large.' Now, you have landlords unwilling to consider those sizes for new buildings."

A new report by commercial real estate platform CommercialCafé ranked Austin No. 11 among the top markets for office development in 2019, with 3.2 million square feet slated to open across 21 projects.

Last year, Austin saw 2.7 million square feet of new office space enter the market across 34 projects, CommercialCafé said. Oracle's existing 560,000-square-foot campus, along South Lakeshore Boulevard overlooking Lady Bird Lake, was the largest office project completed in Austin last year.

The second, 420,000-square-foot phase of Oracle's campus is the biggest office project that is expected to deliver in Austin this year, with an estimated completion in December, according to the report. Oracle to date has not provided a timetable for the second-phase completion.