In early 2020, we started the Austin Office COVID-19 Dashboard as a way to track the impact COVID-19 was having on the Austin office market. In early 2021, with improving conditions on the horizon, we created the Austin Recovery Dashboard as an all-in-one resource to track the factors relevant to Austin’s recovery.
In this article, we dig into the Austin Recovery Dashboard and take a look at how the Austin office market has performed since the beginning of COVID-19 across a number of areas, including:
- Leases, subleases and net absorption
- Demand in the pipeline
- Unemployment and jobs
- Housing and migration
Leases and Subleases
The significant decrease in office leasing volume was one of the primary concerns at the end of 2020, especially coming after three years of high leasing volume. By the end of 2020, a total of 5,056,999 sf of leases were signed according to CoStar data. This is a decrease of 6,918,985 sf (57%) from what was seen in 2019.
Austin Office Leasing Volume
Total office leasing volume in 2021 was still well below what it was prior to COVID-19, totaling 6,310,683 sf, but did show an increase from 2020. This year saw several large office leases, a positive indicator of what we may see moving into 2022. Notable large deals included Cloudflare leasing 125,000 sf at Foundry II, Skyworks leasing 90,000 sf at Eastlake at Tillery and Miro leasing 72,000 sf at Colorado Tower.
Austin Office Leasing Volume
Austin Office Sublease Volume
The other major concern about the Austin office market in 2020 was the significant and rapid increase in sublease space. This space grew to a peak of 4,088,912 sf by 4Q 2020, an increase of 2,514,428 sf (160%) of the total sublease space on the market at the end of 2019. The CBD submarket was hit the hardest in terms of total sublease space added, increasing from 342,218 sf to 1,421,892 sf (315%) over the same period.
However, the total volume of sublease space began to drop at the beginning of 2021 and has been on a downward trend ever since. As of this writing, there is a total of 2,673,896 sf of office space on the sublease market, a decrease of 1,415,016 sf (35%) from the 2020 peak.
As we wrote previously, 25% of the sublease space at the beginning of 2021 was held by 10 companies. Many of these spaces have been taken off the market by tenants deciding to keep their spaces, landlords marketing it as direct space or by securing sublease tenants.
Austin Office Sublease Volume
Demand in the Pipeline
While the transactional volume of leases being signed remains low compared to pre-COVID-19 levels, demand for office space in Austin has picked back up.
According to AQUILA’s proprietary data on tenants in the market, both the number of requirements and the total sf of requirements for office space have both seen positive year-over-year changes during the second half of 2021, as seen in the charts below.
Square Feet of New Requirements – YOY Change
Number of New Requirements – YOY Change
These year-over-year changes are a good indication office tenants may be picking up where they left off on their search for new spaces. This may also mean total leasing volume may soon begin to pick back up as well.
Unemployment and Jobs
As with every other city in the country, Austin experienced a significant number of job losses in 2020. The unemployment rate in the Austin-Round Rock-San Marcos MSA increased to a peak of roughly 12% in April 2020, well above the 2% rate that was seen at the end of 2019.
However, this increase did not last long. Unemployment dropped to 5% by the end of 2020 and is currently sitting at 3.4% as of this writing. As seen in the chart below, Austin is outperforming both the state of Texas and the United States as a whole as far as unemployment is concerned.
Unemployment Rate in Austin
Additionally, there is an increase in new job postings for Austinites to consider. According to data provided by Indeed, Austin currently has 54,418 job postings, 33,989 of which are for full-time positions.
Job Postings in Major Cities
Austin’s current volume of job postings puts it 41,187 jobs (306%) over the low point experienced in April 2020.
Housing and Migration
Housing prices in Austin experienced a sharp rise over the course of 2020, and that increase has continued (though not quite as sharply) during 2021.
According to the Austin Board of Realtors (ABOR) October 2021 Central Texas Housing Market Report, the median home price in Austin is $455,000. This is an increase of $132,000 (40%) from the December 2019 median of $323,000, and an $85,000 (23%) increase from the December 2020 median of $370,000.
Months of Inventory
Source: Austin Board of Realtors – November 2021 Central Texas Housing Market Report
Supply chain issues and rising construction prices are contributing factors to this increase, as is a simple lack of housing inventory. According to ABOR’s October 2021 report, months of housing inventory currently sits at one, compared to 1.7 prior to COVID-19 in December 2019. Housing developers are striving to compensate for this lack of supply, but it will take some time to catch up with the demand.
Speaking of demand, Austin has seen a lot of it recently. According to the latest Census numbers, Austin’s population has grown to 961,855 (22% increase) over the last decade.
The Austin market is having no issue attracting new residents. With companies like Tesla, Amazon, Apple, Facebook and others continuously adding thousands of high-quality, high-paying jobs, it’s unlikely that Austin’s attractiveness will wane any time soon.
With all of this taken into account, it appears the Austin office market is on the road to recovery. Although leasing volume is still low compared to what we saw in 2019, indications suggest this slowdown is only temporary and that things will continue making their return to “normal” in 2022.
Using our dashboards and proprietary market intelligence we’ll continue to monitor recovery, but we have high hopes for the Austin office market and can’t wait to see what 2022 brings.