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Austin’s office market is a bit like your fantasy football league; you can participate with a minimal amount of information, but to compete at a high level requires intense research and concentration. With Austin’s rapid growth, numerous office developments in the works, and large leases being signed seemingly every day, we wanted to take a step back and analyze how the Austin office market is really doing.

In this article, we take a look at:

  • Rental & vacancy rates
  • Net absorption
  • Developments and deliveries
  • Density trends
  • Coworking trends
  • Is a recession coming?


Market Overview

If you want a basic understanding of the health of a real estate market, there are three primary stats to look at: rental rates, vacancy rates, and net absorption. Knowing these three numbers and their accompanying trends is a must before diving deeper into understanding a market.

Rental & Vacancy Rates

As of 3Q 2019, Austin’s existing Class A and B office inventory has a total vacancy rate of 7.2%, down from 8.8% a year ago. Austin’s weighted average full-service rental rate has also improved, going from $46.29 in 3Q 2018 to $47.36 today.

Austin’s three primary submarkets have experienced similar trends over the past year. The CBD is currently experiencing the lowest vacancy rate and highest rental rate of the three at 5% and $66.50 respectively. The Southwest submarket also has very low vacancy today at 5.9%, down from 9.3% this time last year, and a weighted average full-service rate of $43.90. The Northwest submarket has a slightly lower weighted average full-service rental rate of $40.89, as well as a higher vacancy rate of 7%.

Net Absorption

Austin’s year-to-date net absorption is 2.6 million square feet, 850,000 square feet of which occurred in 3Q 2019. Net absorption numbers across the CBD, Northwest, and Southwest submarkets were all close to the break-even point this quarter, with 48,207 square feet, 34,641 square feet, and 34,749 square feet respectively.

The largest driver of negative absorption this quarter is 3M’s official move out of its original campus at 6801 River Place Blvd. in Northwest Austin to about 300,000 square feet at Parmer Innovation Center in Northeast Austin.This move resulted in more than 1 million square feet of negative absorption, heavily impacting the net absorption numbers in the Northwest submarket. The original 3M campus is currently owned by World Class Capital and is potentially headed for foreclosure, so the future is uncertain as to whether the property will be leased anytime soon. We opted not to include the 3M Campus in our absorption numbers this quarter because it is not being actively marketed for lease. We will include the vacant space once it becomes available to the market. The space is also obsolete compared to other properties in the area and is unsuitable for most businesses. However, this large amount of vacant space is an anomaly in the Austin office market and should be viewed as such rather than an indication of the health of the market.

Developments and Deliveries

Several office projects are currently underway across the city that are important to take note of as you consider what the Austin market could look like five years from now. In 2019 we also saw a handful of highly-publicized deliveries, most of which have already seen the majority of their space leased.

As of September 2019, roughly 1.4 million square feet of Class A office space has been delivered this year, 94% of which had been leased at delivery. These include the likes of Domain 11, fully leased to Vrbo; 901 E. 6th, which has already sold; 1400 Lavaca, the new headquarters for South by Southwest; and Offices at Saltillo, Google’s new home on Austin’s Eastside. The remainder of 2019 does not show any signs of slowing down either, with projects like Domain 12 and 618 Tillery expected to finish before the year is over.

We can anticipate several deliveries in 2020 as well, amounting to roughly 2.7 million square feet, of which 47% is preleased. Another building at the Domain, Domain 10, is expected to deliver early next year and is already fully leased to Amazon and Citizens, Inc. 405 Colorado, the only CBD development currently expected to deliver in 2020, is also on the list and has preleased a portion of its space to global law firm DLA Piper.

The Domain

The Domain continues to be a hot spot for new developments.

Some of the largest projects currently under construction are anticipated to deliver in 2021 and 2022. Parsley Energy’s downtown tower is expected to deliver 358,000 square feet in early 2021, and Indeed Tower is anticipated to follow quickly behind to add another 670,000 square feet of Class A office space to Austin’s downtown. And of course Block 185, the development that made headlines by announcing not only that it would be bringing nearly 800,000 square feet to the CBD but also that Google has already leased all of it, is expected to deliver mid-2022.



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If one were to look at the size of these developments alone, one might begin to worry that so much space couldn’t possibly be filled. However, considering that roughly 55% of the office space under construction across Austin has already been preleased and demand for such office space does not seem to be waning, some are worried that we might need more office space yet.

Nationwide Trends

Although AQUILA is focused on being experts in the Austin market, we also put a heavy emphasis on understanding the larger trends happening across the country. As Austin continues to transition into becoming a “big city,” these trends are having an increasingly noticeable impact.

Density Trends

Office density, or square feet of office space per employee, has been steadily decreasing since the early 90s. In 2010, the average density in the U.S. was roughly 235 square feet per employee, which means a 10,000-square-foot office would be home to 42 employees.2 However, today the average density is somewhere around 210 square feet per employee, meaning another six employees would be working in the same amount of space.

This trend towards higher-density office space has been a concern for landlords, and many have started to include density restrictions in leases to limit the number of employees a tenant can have working in their space at any one time. However, according to CoStar, this trend towards higher density could be coming to an end.

CoStar predicts density will begin trending back upwards, albeit slowly, moving forward into 2020 and 2021. While we may never revert back to the large private offices of the 80s and 90s, we could start to see tenants pursuing layouts and strategies to help reduce the need to have so many employees packed into an office at any one time.

Density Trends in the U.S.

Coworking Trends

Coworking, or “flexible” office space, could be a potential solution to alleviating density, as companies are opting to have some employees work remotely in coworking space rather than bumping up the density in the home office. According to CBRE’s report “Let’s Talk About Flex: The U.S. Flexible Office Market in 2019,” flexible space currently makes up only 2% of the total U.S. office inventory, but by 2030 it could reach 13% to 20%.3 Markets with a high concentration of tech companies appear to be the heaviest users of flexible space and have seen a higher degree of penetration than other non-tech markets.

Looking at Austin specifically, we start to see some interesting trends. Austin currently sits slightly above the average with 2.4% of its office inventory occupied by flexible space, compared to markets like San Francisco and Manhattan with 4% and 3.6% respectively. Austin’s CBD is home to 49% of Austin’s coworking space, and there are currently 28 operators with 52 locations across the city. WeWork is by far the largest operator (at more than 400,000 square feet), almost double the square footage of its closest competitor, Regus.

As we begin to think about the future of coworking space and how it will continue to integrate itself into the traditional office market, it’s important to remember that much of the industry’s growth has been carried upward by increasingly healthy office markets across the country that have begun to see historically low vacancy rates and historically high rental rates. As CBRE’s report outlines, flexible space operators are currently finding success by acting as the lower-cost alternative to traditional office space; if rent in traditional office space begins to decline in the case of a recession, that arbitrage opportunity could be harder to profit from.

Coworking | WeWork Office in Austin, Texas

WeWork of 801 Barton Springs; WeWork is by far the largest operator [of coworking space], occupying almost double the square footage of its closest competitor.

Is a Recession Coming?

Of course, the biggest question on everyone’s mind is “when will the next recession start?” While no one can predict with certainty, there are a few sources available to help understand the likelihood of a recession occurring.

For starters, the Federal Reserve Bank of New York’s Probability of U.S. Recession Index is a helpful indicator for predicting how likely it is for a recession to occur. Using the term spread between 10-year and three-month treasury rates, the index is used to give the probability of a recession occurring in the next 12 months.

Probability of Recession Index

As indicated by the chart, the index has been trending upward since 2015 and has now returned to levels similar to those seen in 2008, predicting a 38% chance of a recession occurring by September 2020.

Looking at Austin specifically, the Mueller Market Cycle Monitor (above) provides a useful indication of what stage of the real estate cycle our city is in. Put together by Glenn R. Mueller, Ph.D. at the University of Denver, the model uses construction and occupancy trends to place markets in one of four stages: recovery, expansion, hyper supply, and recession.

Real Estate Cycles

Source: Mueller, Real Estate Finance, 1996

As of 2Q 2019, the model places Austin’s office market at the equilibrium point between the expansion and hyper-supply stages (point 11), meaning supply and demand are seemingly almost equal. Whether Austin will slide back towards more expansion or will teeter over the edge into hyper-supply is yet to be seen, but for now, the market is right where you might hope it to be.

Austin is a much different city than it was in 2008 so it is hard to say what impact a recession will have. Nonetheless, we know real estate works in cycles so it is always advisable to be prepared for a recession even if current conditions seem positive.



For the most part, Austin’s office market seems to be doing well. While tenants surely wish rental rates would get a little cheaper and landlords would like vacancy rates to fall just a little bit more, the current state of the market appears to be healthy.

To learn more about the changes in Austin’s office market, download our latest Austin Office Market Report.

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1Source: ABJ – 3M’s New Northeast Austin Campus Opens
2Source: CoStar Portfolio Strategy
3Source: CBRE – Let’s Talk About Flex: The U.S. Flexible Office Market in 2019


Kirk Silas | AQUILA Commercial

Kirk Silas

Kirk manages AQUILA's research department and oversees research initiatives and data collection

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