Wondering how Austin’s Office Market is recovering after COVID-19?

The COVID-19 pandemic has dramatically impacted both people and businesses around the world. While we were previously tracking how Austin’s office market was impacted, we are now looking to the future and recovery. What does recovery look like in Austin and what impact will it have on real estate? AQUILA aims to study business recovery in Austin in order to help answer this question.

Specifically in this study, we examine the Austin job market, Austin-area subleases, and relocations to Austin in order to gain a better understanding of how these forces will impact the local commercial real estate market.


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Kirk Silas | AQUILA Commercial About the Author

Kirk Silas

Kirk is the mastermind behind AQUILA's wealth of market intel. He continuously delves into data and crunches the numbers to provide our team and our clients with the latest market insights and most in-depth analysis.
Chapter 1

State of the Market

Square Feet of Office Leases Signed

Utilizing CoStar’s leasing data, we can see that office leasing volume in Austin decreased drastically in 2020. We are hoping to see this number trend upward over the course of 2021.


 

Square Feet of New Requirements – YOY Change

Using AQUILA’s proprietary data on tenants actively searching for space in the Austin market, we are tracking the square feet of requirements per month. These numbers include all tenant types looking for office space in Austin. The chart shows the percentage difference in requirements compared to the same month a year ago.


 

 

Net Absorption Forecast (Citywide)

This forecast uses job growth, unemployment, AQUILA’s requirements data and assumptions about the future of work from home to forecast the volume of net absorption that could occur over the next few years.


  • Forecast uses a regression model with square feet of requirements and job growth as X variables. The model has an adjusted R Square of 0.95 and Significance F of 0.024. 
  • Forecast assumes Austin’s unemployment rate will be 4.2% in 2021 and 3% in 2022 (based on the current unemployment rate and historical averages). Also assumes the Austin MSA’s total labor force will grow by 2% YOY in 2021 and 2022 and that AQUILA will receive 10.5M SF of requirements in 2021 and 11 M SF of requirements in 2022 (both assumptions are in line with historical trends).  
  • Forecast also assumes job losses have a slower impact on net absorption than job additions due to long-term leases. 
  • Work from home (WFH) forecast assumes 25% of employees will continue working from home in 2021 (historically has been 5%, currently at 33% per Gallup poll), and 15% in 2022. Aggressive WFH forecast assumes 50% of employees will work from home in 2021 and 2022.

 

Recent Office Lease Comps in Austin

These lease comps represent the most recent and relevant office leases executed in recent months.

Tenant Property Name Submarket Transaction Type Size (SF) Lease Term (Months) Lease Execution Start NNN Lease Rate Operating Expenses TI Escalation Amount Free Base Rent (Months)
ShipStation (Auctane) The Grove Central New Lease 105,385 136 August 2020 $37.50 Not Available $70.00 2.25% 6
Sachem, Inc. Monterey Oaks Corporate Center Bldg B Southwest Renewal 12,238 39 August 2020 $27.50 $9.26 $0 $0.75 3
Heritage Title Indeed Tower CBD New Lease 20,459 124 October 2020 $46.00 $19.00 $70.00 $1.00 4
Bain Capital 405 Colorado CBD New Lease 12,285 136 October 2020 $45.00 $18.50 $90.00 3% 3
First United Bank Seven Oaks East Southwest New Lease 23,416 123 October 2020 $32.00 $12.13 $57.50 $0.75 3
Orrick 300 West Sixth CBD Sublease 10,416 36 January 2021 $44.00 $28.71 $0 3% 0
Ziff Davis Stone Cliff Northwest Expansion 17,744 64 October 2020 $20.50 $13.88 $9.28 3% 4
Austin Cryo Ventures LLC Penn Field Building C South New Lease 16,375 51 October 2020 $32.50 $16.59 $0 3% 3
ERCOT Met Center Creative Office – Bldg E Southeast New Lease 37,650 123 December 2020 $29.00 $8.10 $75 2.5% 3
Realtor.com 901 E 6th East Sublease 28,782 77 October 2020 $43.00 $28.03 $7.50 3% 0
Centene Corporation Paloma Ridge Building C Northwest New Lease 57,539 89 November 2020 $24.50 $12.50 $90 Not Available 5
Husch Blackwell One Eleven CBD New Lease 37,559 156 December 2020 $38.50 $27.04 $90 $1.00 4
ZT Group Research Park Plaza IV Northwest New Lease 49,312 84 January 2021 $29 $17.56 $30 $0.75 6
Vinson & Elkins LLP Indeed Tower CBD New Lease 50,273 150 March 2021 $44 $19 $80 $1.00 6
Wizards of the Coast Domain Point 1 Northwest New Lease 19,964 75 March 2021 $28.50 $17.46 $54 $0.86 3
Goosehead Insurance Stonebridge Plaza I Northwest New Lease 15,070 88 March 2021 $30 $18.67 $50 $1.00 4
Thompson Co The Terrace 7 Southwest New Lease 25,000 126 June 2021 $33.25 $18.85 $80 $0.75 6

 

 

 

Chapter 2

Positive Indicators

Austin Area Unemployment Rate

Though unemployment in the Austin area peaked at over 12% in early 2020, it has now decreased to roughly 5%. Unemployment in Austin pre-COVID-19 was near 2%, so that is what we would like to see again.


 

Total Jobs Available In Austin and Comparable U.S. Cities

Using job listings on Indeed, we have been tracking jobs available in Austin and comparable cities since the beginning of 2020. Most employers halted hiring at the onset of COVID-19, so this data can be used to gauge in which cities employers are starting to hire once again.


 

 

Migration Analysis

Austin has seen an influx of companies relocating from other states, and our residential population is no different. This interactive map shows the volume of searches for homes in Austin based on where the searcher currently lives.


 

Companies That Have Relocated to Austin

Just as people are moving to Austin from out of state, the same is true for companies. Using the Austin Chamber’s relocation list and our own research, this map shows the companies that have relocated to Austin or opened a location in the Austin area for the first time.


 

CEOs Moving to Austin

Chapter 3

Stats to Watch

Austin Office Sublease Tracker

Using CoStar and broker email blasts, we have been tracking new subleases hitting the market in Austin. It is hard to say which of these are a direct result of COVID-19, but we feel it is still helpful to understand the volume of subleases on the market and which tenants are subletting their space


 

Austin-Round Rock MSA Housing Numbers

Austin’s housing market is booming, with homes selling for thousands over asking price and inventory at an all-time low. The numbers below represent the most recent monthly stats on the residential market’s performance.

$470,000

Median Price

3,849

Closed Sales

4,409

New Listings

3,970

Pending Sales

1.0

Months of Inventory

Source: Austin Board of Realtors – August 2021 Central Texas Housing Market Report

 

Trends in Office Space

There has been lots of speculation surrounding what the office will look like in a post-pandemic world. We’ve collected a handful of articles we feel shed the best light on that topic.

We are here for you and are ready to help.

At AQUILA, we have always strived to not just be your real estate service provider, but your trusted partner and advisor as well. It is in difficult times like this that we hope that we can truly show you the latter. Know that we are here as a resource for you and are ready to help however you may need. Please don’t hesitate to reach out to your contact at AQUILA should you have any questions on any of the information provided.