Market Update: What’s Fueling Austin’s Large Office Pipeline

Key takeaways:

• In 2022 Austin remained the nation’s leading market for development, with its under-construction office pipeline accounting for 7.2 percent of the metro’s total stock.
• Google and Apple are among the top tech players that delivered large projects in the metro last year.
• While sales volume was low, Austin was the priciest Sun Belt office market in 2022.
  

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Austin was a magnet for investors in recent years and continued its rapid expansion in 2022. Since the start of 2021, the Texas capital added 59,000 office jobs, marking an 18.0 percent growth. In 2022, the metro saw 5.7 million square feet in office starts, surpassing 2021 starts by 2 million square feet.

At the end of 2022, the metro had 7.6 million square feet of office space under construction, representing 7.2 percent of total stock, according to CommercialEdge data. The Texas capital maintained its leading position as the metro with the nation’s largest development pipeline relative to overall stock. Atlanta was inching up behind, with an under-construction supply accounting for 6.2 percent of total stock.

Amounting to 13.9 million square feet, Atlanta had the largest under-construction pipeline across Sun Belt markets, followed by Dallas (8.1 million square feet), Charlotte (4.0 million square feet), Nashville (3.2 million square feet) and Phoenix (1.5 million square feet).

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The Republic. Image courtesy of Neoscape

In the second quarter of last year, Lincoln Property Co., Phoenix Property Co. and DivcoWest commenced construction of The Republic, the biggest office project in the making in Austin. The 48-story will yield 833,000 square feet of office space in downtown Austin. In April, the developers secured the building’s first major tenant.

Another large-scale project that commenced construction in 2022 is Waterline, a 2.7 million-square-foot mixed-use development by Lincoln Property Co. and Kairoi Residential. Set to be the tallest tower in the city, the 74-story skyscraper is planned to encompass 700,000 square feet of office space, a 251-key 1 Hotel Austin, ground-level retail and dining, as well as 352 residential units on the top floors.

Some of Austin’s largest projects came online in 2022

In 2022, 4.3 million square feet of office space came online in the Texas capital, representing 4.1 percent of total office inventory. Austin had the largest completed office space stock among similar Sun Belt markets, followed by Dallas (3.0 million square feet) and Atlanta (2.3 million square feet).

Apple’s Austin campus. Image courtesy of Apple

As for large deliveries, Apple completed the first phase of its $1 billion Parmer Lane Campus during 2022. At full buildout, the project is planned to create 3 million square feet of space in 12 buildings. In January 2023, the company announced plans to start the project’s second phase at its 133-acre campus.

Trammell Crow and MSD Capital LP also completed the long-anticipated Google Tower, the city’s tallest office structure. The tech giant signed up for the entire 814,081-square-foot building back in 2019, around the time of the skyscraper’s groundbreaking. The 35-story high-rise was designed by Pelli Clarke Pelli Architects.

Austin’s vacancy larger than the national average

The metro’s vacancy rate hit 19.6 percent in December, lower than that of Atlanta (20.0 percent), but higher than in Charlotte (13.2 percent), Nashville (18.0 percent) and Dallas (18.5 percent). That same month, the national vacancy rate for offices averaged at 16.5 percent.

Indeed Tower. Image courtesy of CommercialEdge

In October, Kilroy Realty inked one of the biggest leases of the second half of the year at its Indeed Tower in Austin’s CBD. Design, architecture and engineering firm Page—which also acted as architect of the LEED Platinum-certified building—signed up for 51,000 square feet at the location.

With the flex sector riding a new wave of heightened demand, coworking spaces have been popping up across the U.S. In December 2022, Austin’s flexible office market had 70 locations registered by CommercialEdge, across roughly 1.1 million square feet and representing 1.8 percent of total rentable office space in the metro.

Sales volume low, but prices high

During 2022, Austin’s office market saw the trade of $1.15 billion worth of office product, comprising roughly 5.1 million square feet and 77 properties. Among peer markets, Atlanta ($2.86 billion) registered the largest sales volume last year, followed by Dallas ($2.24 billion) and Charlotte ($1.26 billion). The Texas capital’s average sale price was $358.3 per square feet, the highest across Sun Belt cities, followed by Charlotte ($285.5 per square feet), Nashville ($255.9 per square feet) and Phoenix ($253.6 per square feet).

The largest commercial deal of 2022 was the trade of Block 21. Ryman Hospitality Properties Inc. purchased the 476,150-square-foot mixed-use property from Stratus Properties for $124 million. The downtown tower includes 158,935 square feet of retail and a 251-key W Austin Hotel.

Tishman Speyer’s sale of The Foundry, a two-building, 240,000-square-foot property near downtown Austin was another large office deal that closed in 2022. Beacon Capital Partners picked up the LEED-certified complex for an undisclosed amount.