Austin’s office market slows after a year of rapid expansion Research & Forecast Report AUSTIN | OFFICE Q1 2016 Hannah Tysor Senior Marketing & Research Coordinator | Houston & Austin After a major spike in the second half of 2015, Austin’s citywide positive net absorption decreased in Q1 2016 to 290,047 square feet. Three buildings totaling 321,024 square feet delivered in the first quarter. Projects that delivered in Q1 include the fully leased NorthShore building in the CBD, Research Park Plaza V in the Northwest submarket, and Domain I in the North/Domain submarket. Domain I has yet to sign a tenant. In the East submarket, there is over 350,000 square feet of proposed new construction with average rates in the low 30s. The citywide average rental rate increased by 0.5% from $31.12 per square foot to $31.27 per square foot over the quarter. Class A rental rates in Austin’s CBD decreased by 1.1% over the quarter to $44.64 per square foot from $45.14 per square foot in Q4. Overall suburban Class A rental rates increased from $33.46 per square foot to $33.98 per square foot over the quarter. Texas added 2,100 nonfarm jobs in February, expanding the state’s employment for the 11th consecutive month. Austin’s unemployment rate remains the second lowest in the state behind Amarillo. Since Q1 2015, Austin’s unemployment rate has dropped from 3.5% to 3.1%. Texas has seen an upward trend in the education and health services industry for 37 consecutive months. Seven out of eleven major industries saw growth in the first quarter across the state. Vacancy & Availability Austin’s citywide vacancy rate remained unchanged between quarters at 11.2%. However, since the first quarter of 2015, citywide vacancy has dropped 140 basis points from 12.6%. Vacancy in the CBD remains lower than the average at 6.7%. Since Q1 2015, vacancy in the CBD has decreased dramatically by 210 basis points. Over the quarter, overall vacancy in the CBD fell by ten basis points. Overall suburban vacancy remained the same over the quarter at 12.4%. Submarkets that saw a significant decrease in vacancy over the quarter include Central, Far Northwest, and West Central. Summary Statistics Austin Office Market Q1 2015 Q4 2015 Q1 2016 Vacancy Rate 12.6% 11.2% 11.2% Net Absorption (Million Square Feet) .674 .874 .290 New Construction (Million Square Feet) .695 .671 .321 Under Construction (Million Square Feet) 2.385 1.579 1.357 Class A Vacancy Rate CBD Suburban 10.5% 13.6% 7.5% 12.4% 6.9% 12.4% Asking Rents Per Square Foot Per Year Average $29.95 $31.12 $31.27 CBD Class A $42.38 $45.14 $44.64 Suburban Class A $31.78 $33.46 $33.98 Market Indicators Relative to prior period Annual Change Quarterly Change Quarterly Forecast* VACANCY NET ABSORPTION NEW CONSTRUCTION UNDER CONSTRUCTION *Projected
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Austin’s office market slows after a year of rapid expansion
After a major spike in the second half of 2015, Austin’s citywide positive net absorption decreased in Q1 2016 to 290,047 square feet.
Three buildings totaling 321,024 square feet delivered in the first quarter. Projects that delivered in Q1 include the fully leased NorthShore building in the CBD, Research Park Plaza V in the Northwest submarket, and Domain I in the North/Domain submarket. Domain I has yet to sign a tenant. In the East submarket, there is over 350,000 square feet of proposed new construction with average rates in the low 30s.
The citywide average rental rate increased by 0.5% from $31.12 per square foot to $31.27 per square foot over the quarter. Class A rental rates in Austin’s CBD decreased by 1.1% over the quarter to $44.64 per square foot from $45.14 per square foot in Q4. Overall suburban Class A rental rates increased from $33.46 per square foot to $33.98 per square foot over the quarter.
Texas added 2,100 nonfarm jobs in February, expanding the state’s employment for the 11th consecutive month. Austin’s unemployment rate remains the second lowest in the state behind Amarillo. Since Q1 2015, Austin’s unemployment rate has dropped from 3.5% to 3.1%.Texas has seen an upward trend in the education and health services industry for 37 consecutive months. Seven out of eleven major industries saw growth in the first quarter across the state.
Vacancy & Availability
Austin’s citywide vacancy rate remained unchanged between quarters at 11.2%. However, since the first quarter of 2015, citywide vacancy has dropped 140 basis points from 12.6%.
Vacancy in the CBD remains lower than the average at 6.7%. Since Q1 2015, vacancy in the CBD has decreased dramatically by 210 basis points. Over the quarter, overall vacancy in the CBD fell by ten basis points.
Overall suburban vacancy remained the same over the quarter at 12.4%. Submarkets that saw a significant decrease in vacancy over the quarter include Central, Far Northwest, and West Central.
2 Austin Research & Forecast Report | Q1 2016 | Office | Colliers International
Vacancy in the Far Northwest submarket in Class A properties dropped from 15.2% to 6.8% over the quarter.
Submarkets that experienced increases in vacancy in Q1 include Northwest, and North/Domain. In the North/Domain submarket, Domain I, a 124,578 SF office building, delivered in January and remains completely vacant.
Absorption, New Supply and Vacancy
Absorption & Demand
Austin’s office market posted 290,047 square feet of positive net absorption in Q1 2016, a dramatic decrease from the second half of 2015 which saw 1,889,284 square feet of positive net absorption. A majority of the positive net absorption in the first quarter can be attributed to the Far Northwest submarket’s Class A office space that saw 160,581 square feet of positive net absorption. LDR Spine USA, a medical manufacturing facility, moved into their 53,170 SF space in Aspen Lake One.
The second highest positive net absorption occurred in Class A space in the CBD with 63,213 square feet in the first quarter, due in a large part to the delivery of the NorthShore building where Galvanize moved into 23,592 SF of space. NorthShore was 100% leased at completion.
Citywide Class B space saw 42,442 SF of negative net absorption in the first quarter. Negative net absorption in Class B space occurred in the Northwest, South, Southwest and CBD submarkets.
Rental Rates
The citywide average rental rate increased over the quarter from $31.12 per square foot to $31.27 per square foot. The highest rates across the Austin market in the first quarter were in CBD Class A buildings where rental rates reached $44.64 per square foot. Although still higher than other submarkets, Class A rates in the CBD fell by 1.1% since Q4 2015. Rental rates were also high in the South submarket and West Central submarket where Class A rental rates reached $39.38 per square foot and $37.62 per square foot respectively.
Citywide Class B rental rates rose slightly in the first quarter to $25.71 per square foot from $25.43 per square foot in Q4. Class B rates in the CBD rose by 4% over the quarter from $35.48 per square foot to $36.91 per square foot.
33 Austin Research & Forecast Report | Q1 2016 | Office | Colliers International
Q1 2016 Top Office Lease TransactionsBUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE
Domain 4 North/Domain 400,000 Accruent Mar-16
5800 Airport Blvd Central 75,735 Netspend Jan-16
Lamar Central West Central 69,868 Unknown Feb-16
9600 N MoPac Expy Northwest 44,712 Oracle USA, Inc.1 Feb-16
Rollingwood Center Southwest 37,883 Unknown Feb-16
Riata Corporate Center Northwest 33,557 Unknown Feb-16
Research Park Plaza Northwest 25,937 Navitus Health Solutions Jan-16
13620 Ranch Road 620 N Cedar Park 22,285 CalAtlantic Homes Mar-16
The Park at Barton Creek Southwest 21,265 Unknown Feb-16
Lakeview Plaza Northwest 19,664 2Wire, Inc.1 Jan-16
816 Congress CBD 18,660 Unknown Mar-16
Capstar Plaza West Central 17,515 Jones Lang LaSalle Feb-16
Park Centre Northwest 16,228 Xplore Technologies Mar-16
Atrium Office Centre Central 16,146 The Community Care Collaborative Feb-16
Treemont Plaza Southwest 15,287 Mattersight Corporation Mar-16
Atrium Office Centre Central 15,893 Stewart Title Company Feb-16
Monterey Tech Center Southwest 14,400 Arrive Logistics Mar-16
1705 Guadalupe St. CBD 11,210 NeighborFavor Inc., DBA “Favor” Feb-16
Scarbrough Building CBD 10,536 ClearData Mar-16
Lamar Central West Central 10,288 AcademicWorks Feb-16
Leasing ActivityAustin’s office leasing activity recorded 1,316,525 SF in Q1 2016. Major transactions this quarter included a new lease for Accruent at Domain 4 and a renewal for Oracle USA, Inc.
1 Renewal 2 Expansion3 Sublease4 Pre-lease/proposed or under construction
Q1 2016 Significant Sales Transactions – (100,000 SF or greater)BUILDING NAME SUBMARKET RBA (SF) YEAR BUILT BUYER SELLER SALE PRICE $/SF CLOSED
Parmer Office Park (6 Properties) Northwest 257,468 1999-2001
US Real Estate Invesment Fund, LLC & Eurus Capital
REEF America LLC Undisclosed N/A Jan-16
9101 Burnet Rd. & 12710 Research Blvd
North/Domain &
Northwest124,310 1984 Valor Capital Partners OakPoint and Haverford
Management Undisclosed N/A Feb-16
University Park Central 206,657 2009 Lionstone Investments UP Austin Holdings LP $64,270,327 $311 Mar-16
316 W. 12th St. CBD 100,000 1950 Austin 316 LP Texas State Teachers Association Undisclosed N/A Mar-16
Sales ActivityAustin’s office investment sales activity included four sales transactions (including two portfolio sales) with an average sale price of $294 per SF.
Sources: CoStar and Real Capital Analytics*Part of a portfolio
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Office Development Pipeline1.35 million square feet of office space was under construction during Q1 2016. Three buildings totaling 321,024 square feet delivered in Q1 including Domain I, a 5-story office building with ground level retail in the North/Domain submarket. Domain 11, a proposed 400,000 SF building, got the green light to begin construction.
BUILDING NAME ADDRESS SUBMARKET SF PRE-LEASED DEVELOPER EST.
DELIVERY
Domain 5 11305 Alterra Pky North/Domain 74,804 0.0% Endeavor Real Estate Group Apr-16
5th & Colorado 201 W 5th St CBD 179,846 26.8% Lincoln Property Company Jun-16
2700 La Frontera Blvd 2700 La Frontera Blvd Round Rock 97,941 89.3% Unknown Jun-16
Green Water Treatment Plant 500 W 2nd St CBD 500,512 41.2% Trammel Crow Co Jan-17
Domain 8 11601 Alterra Parkway North/Domain 291,058 0.0% Endeavor Real Estate Group Feb-17
QUOTED GROSS RENTAL RATES FOR EXISTING TOP PERFORMING OFFICE BUILDINGS
BUILDING NAME ADDRESS SUBMARKET RBA (SF) YEAR BUILT
% LEASED
AVAIL. SF
RENT ($/SF) OWNER
Frost Bank Tower 401 Congress Ave. CBD 535,078 2003 98.50% 7,944 $56.97 CalSTRS
One Eleven 111 Congress Ave. CBD 518,385 1985 90.20% 98,046 $55.31 Parkway Properties, Inc
One American Center 600 Congress Ave. CBD 503,951 1984 97.40% 13,187 $48.91 CalSTRS
301 Congress 301 Congress Ave. CBD 418,338 1986 88.60% 75,877 $52.46 National Office Partners, LP
100 Congress 100 Congress Ave. CBD 411,536 1987 97.70% 27,991 $55.52 Metlife, Inc.
7700 W Parmer Ln - Bldg. B
7700 W Parmer Ln - Bldg. B Far Northwest 350,000 1999 90.60% 31,500 $38.20 Unknown
7700 W. Parmer Ln - Bldg. C
7700 W. Parmer Ln. - Bldg. C
Far Northwest 282,000 1999 91.80% 23,693 $39.57 Unknown
Two Barton Skyway 1601 S MoPac Southwest 195,639 2000 97.10% 5,639 $32.10 University Federal Credit Union
Lamar Central 3800 N Lamar Blvd. CBD 168,752 2015 85.9% 93,654 $52.71 Lamar Village Shopping Center
Note: Avail. SF includes direct and sublet space as well as any future available space listed. Source: CoStar Property
7 <<region>> Research & Forecast Report | Quarter Year or Date | <<Location / Sector>> | Colliers International7 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International
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LEADING THE NATIONAustin is ranked No. 1 for real estate development across all 75 markets surveyed in Emerging Trends in Real Estate, an annual report published by the Urban Land Institute and PwC LLP. Austin ranked second in the nation for overall real estate prospects.
8.0M SF11.2% 290,047 SFVACANCY NET ABSORPTION
CLASS A: 56% CLASS B: 37% CLASS C: 7%TOTAL INVENTORY BY CLASS