At AQUILA, we understand how difficult it can be to estimate what it will cost your company to lease space in Austin. Between operating expenses (opex), rental rates and construction costs, there are a lot of numbers that need to be taken into account.
To help make this process as simple as possible, in this article we will take a detailed look at average opex rates in Austin’s primary office submarkets, including:
- Central Business District (CBD)
- The Domain
What is Opex?
Before we begin, it’s important to understand what opex is. Opex, most commonly quoted on a per square foot (sf) per year basis, are the costs associated with operating and maintaining a commercial property. These expenses are passed through to the property’s tenants on a pro rata share based on the percentage of the building the tenant occupies.
Operating expenses are primarily made up of three components: property taxes, insurance and common area maintenance (CAM) fees. Other expenses, such as utilities and janitorial, are also included in some cases.
Central Business District Opex
Austin’s CBD has the highest opex in the city on average, mostly due to the higher property tax valuations in the area compared to other submarkets. This, along with the submarket’s high rental rates, makes it the most expensive area to lease office space in Austin.
Below you can see how the CBD submarket’s average opex has changed over time and where it is currently.
As you can see, the average opex is currently $26.25 per square foot per year. For a 10,000-sf tenant, this would amount to $262,500 in opex cost per year.
Austin’s CBD does, however, make up for its higher cost by also offering a higher level of walkability for its tenants compared to other submarkets. Tenants downtown have easy access to a plethora of dining options for lunch and dinner, as well as plenty of entertainment venues to choose from. Its proximity to other amenities like the Roy and Ann Butler Hike and Bike Trail around Lady Bird Lake further sets the CBD apart from other submarkets in Austin.
Additionally, there are several office developments underway in the CBD today, which may present tenants with an opportunity to save money on their opex by signing a lease in a new building.
Average opex in Austin’s Northwest submarket falls well below what is found in the CBD, currently sitting at $15.30 per square foot. This has held true historically as well, primarily because buildings in the Northwest have lower taxable values per square foot than their downtown counterparts. This, mixed with other points of cost savings like lower rental rates and free parking, makes the Northwest submarket a relatively affordable location to lease office space in Austin.
Below you can see how opex in the Northwest has changed over time.
At the current average of $15.30, a 10,000 sf tenant would pay $153,000 per year in opex.
Although many of the newly constructed buildings in the Domain share more similarities with a high-end downtown highrise, a mix of efficient design and relatively lower tax valuations result in the area’s average opex closely tracking what can be found in the broader Northwest submarket.
Based on rates today, a 10,000 sf tenant in the Domain would pay $177,400 per year in opex.
Commonly known as Austin’s “second downtown,” the Domain offers a similar experience to what can be found in the CBD, both from a walkability standpoint and from the quality of office space it offers. Although higher than what is seen elsewhere in the Northwest submarket, rental rates at the Domain are still well below what can be found in the CBD.
Opex in the Southwest submarket is still not as high as the CBD, but is slightly higher historically than the Northwest. Because development in the Southwest is somewhat limited due to zoning and environmental concerns, many buildings in the submarket are older and slightly less efficient than what would be found in new construction. This results in higher CAM fees and, in turn, higher opex.
If a 10,000 sf tenant were to lease space in the Southwest today, they would pay roughly $158,800 in opex per year.
Southwest Austin is often considered to be the most beautiful of Austin’s submarkets due to its prime location in the Texas Hill Country, and has historically attracted tenants wishing to be close to downtown but wanting to avoid the high costs that a CBD office brings with it. Although the Southwest has historically seen higher rental rates than the Northwest, they are still far below rental rates in the CBD.
We hope this overview of opex in Austin’s primary submarkets gave you a good idea of where opex rates are today. To continue learning about the Austin office market, check out our guide to Understanding the Austin Office Market.
Or download your free copy of the Austin Office Market Report to get all the details on rates, trends, transactions in more from the last quarter.