Austin-area office rents, occupancies rise in first-quarter

Apr 11, 2014
Austin American Statesman

The Central Texas office market continued its upswing in the first quarter, with rents and occupancy rates both higher than the same quarter last year, Oxford Commercial said Thursday


A high occupancy rate for office space is a strong indicator for a city’s economy, as it shows companies are eager to do business in the market


The occupancy rate for top-tier (Class A) office space in Austin averaged 90 percent at the end of March, up from the 87.3 percent average at the close of the first quarter of 2013, Oxford Commercial said in its latest report. Rents for that space averaged $32.70 per square foot per year, up from $31.14 a square foot in the first quarter of last year, Oxford said


Leasing activity was strong in the quarter, Oxford brokers said, causing the overall vacancy rate citywide to dip below the 10 percent mark, to 9.9 percent. Oxford Commercial was involved in five of the six largest deals during the quarter, which included leases for Athenahealth, Websense, Parsley Energy and Sunpower


The office squeeze in the Austin area should ease some with nearly 1.6 million square feet of new office product expected to come online this year. The rest of the 2.5 million square feet of office space currently under construction is due to come to market in 2015, Oxford said


In the first quarter, the market overall saw nearly 400,000 square feet of net space leased, 82 percent more than in the year-ago quarter


Downtown, more than 142,000 square feet of net space was leased, a 96 percent increase from the net leased downtown for all of 2013


In addition to downtown, tech companies are gravitating to the rapidly changing east side of Austin as well, looking in both areas “for unconventional office space that will contribute to their culture,” said Brian Butterfield, an Oxford vice president


“Tech companies looking at downtown and the east side have placed an extremely high value on employee retention and morale, which is how they are justifying the lease rates, operating expenses and parking costs in downtown,” Butterfield said


In its latest national office report, Marcus & Millichap said Austin’s “booming tech sector” is driving the demand for office space


“Several recent corporate relocations and expansions in the thriving high-tech economy will push down vacancy in Austin this year,” the report said. “Apple, AT&T, Visa, Samsung, and General Motors are just a few of the most recognizable names that have expanded operations in the metro. Additionally, Google Fiber will also make its debut in the market, providing resources and opportunities for further development of high-tech industries.”


Those and other expansions are expected to result in local office market seeing the highest leasing activity in five years in 2014, giving landlords leverage to raise rents, Marcus & Millichap said


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