Austin Office Market Achieves Highest National Construction Rate

CBRE’s Bo Beachem with Austin (LinkedIn, iStock)

Austin had the highest rate of office construction in the nation as a share of the Texas capital’s overall inventory.

Offices under construction in Austin in the first quarter accounted for 9.4% of the city’s existing inventory, according to CBRE. Charlotte, North Carolina was second with 8.4% of the stock, San Jose was third with 6.4%, while Nashville was fourth with 6.3%.

According to CBRE, office development continues to accelerate in low-cost, high-growth Sun Belt markets, particularly for technology and life sciences. This is expected to continue as businesses move into the region from coastal cities and places like Chicago, CBRE senior vice president Bo Beachem said in Dallas.

“Austin, leading into the pandemic, had an extremely robust development pipeline,” Beachem said. “The trends are therefore more or less consistent with the strength of the market leading to the pandemic. And I think we’ve recovered as quickly as any market.

The Austin market has seen three consecutive quarters of positive net absorption, according to the report, recovering quickly from the COVID-induced crisis it suffered. Businesses, especially venture capital and private equity firms, are expanding into the Austin area to help facilitate a startup ecosystem, Beachem said.

Attracting workers depends on the quality of life and the cost of living, and these are still favorable compared to the more expensive coastal markets, even if the median price of houses in the city continues to rise.

“So you look at our development pipeline, the lion’s share of new products coming in and being built are in three submarkets that all have this live work, this game, this dynamic walking, it’s all always depending on how how you recruit and retain them,” Beachem said. “Companies look to places where their employees have an experience. Not just co-working spaces, but environments where they have the opportunity to entertain clients or hang out at team locations after work.

Austin and other booming office markets also have “a lot of new multi-family developments, sort of a follow-up to the younger millennial generation that is a big part of the workforce here in Austin,” said Beachham.

As companies continue to develop new work strategies, competition for high-quality office space and the flight to quality continue to escalate, with average Class A demand rates in Austin hitting an all-time high of $53.34 per square foot in the first quarter, the first time it topped $50 since CBRE began tracking the metric in 1989.

The construction of offices has mainly slow motion nationwide since 2020 amid rising costs and high office vacancy, but Sun Belt markets have continued to thrive. The region also has among the highest numbers of workers returning to the office. Austin led the Sun Belt pandemic-era job growth dominance with a nearly 15% year-over-year increase in office employment in March, more than three times the 4.6% increase nationwide, driven by business movement.

“A lot of it still comes down to the talent and where the talent wants to be and where it’s going,” Beachem said.

“Your dollar that you earn here goes a little further than some of the more expensive markets like San Francisco and New York and the markets of Chicago and LA, Seattle. But it all depends on the talent that is here and the talent that is willing to move here.

Beachem sees this robust development pipeline continuing through 2022 as companies continue to move to deliver better employee experiences, and most new development delivered in the last 24 months is either stabilized now or in stabilization path.

“We are certainly seeing material impacts and increases in construction costs, so either developer returns are going to be squeezed or tenants will have to pay higher rates to justify these projects.”

Compared to markets like Houston and Dallas, the fundamentals here are much stronger, according to Beachem, and much of Austin’s absorption has been attributed to new organic expansions, as opposed to just tenant moves already. existing.

[CBRE] —James Bell

Jose C. Birney