Over the last two decades, Austin has maintained one of the lowest unemployment rates in the country and the lowest among the largest metropolitan areas in Texas, consistently outperforming Dallas-Fort Worth, Houston and San Antonio. Austin’s widespread appeal has drawn a diverse pool of talent to the city’s job market, and our commercial real estate industry has undoubtedly been a great beneficiary. The recent strength of the market begs the question: When the Austin office market will peak?
The current real estate cycle in Austin stands apart from those in recent history. Although rental rates are continuously reaching new heights, they are rising at a much more deliberate rate than the previous two cycles, and they are rising for much healthier reasons.
During the last cycle, landlords were building new product in a period of low demand. At one point there was over 2.5 million square feet of office space under construction. At that time, rental rates were flat and vacancy rates were increasing. To compare, there is just over 1.5 million sf under construction today (with more pre-leasing activity than in 2008), and vacancy rates are steadily declining while rental rates are continuously increasing.
Every up-swing of a business cycle has the same traits on the surface: rising rental rates and declining vacancy rates; and we all know that what goes up must also come down. When putting these factors under the microscope, dissecting the underlying behaviors of those increases and decreases helps determine how long, steep and healthy those upswings will be.
We cover the specifics regarding the current state of the Austin office market, provide detailed historical charts and a robust analysis of the sublease market in our 3Q 2016 Austin Market Report, now available for download.
At AQUILA we are encouraged by the well-paced growth we’ve seen over the past several years. The upcoming presidential elections, slowing global economy and slow down of leasing activity in Silicon Valley are all factors that could impact growth in Austin, which we continue to keep an eye on. Barring any major macro-economic events, we anticipate that the Austin office market is poised for steady growth in the coming quarters.