Central Texas’ office market continues to flourish, with demand for space unabated and rents hitting an all-time high in the second quarter, the latest figures show.
At mid-year, rents for top-tier (Class A) space hit a record $43.73 a square foot , up from $40.17 at the end of June 2018, according to commercial real estate services firm Cushman & Wakefield Austin.
The occupancy rate for Class A space averaged 90.4% in the second quarter, up from 89.3% in the year-ago quarter, according to Cushman & Wakefield.
For all classes of space, both new and old, rents in the Austin area averaged $38.50 a square foot — a record high, according to Cushman & Wakefield’s numbers.
“Fueled by strong job growth and corporate relocations, we’re still witnessing rental rates increase as vacancies decrease,” said Mike Brown, senior vice president in Austin for Transwestern, a commercial real estate services firm.
The increase in rents this quarter was lower than previous quarters, which could suggest that rents are starting to level out throughout the market, commercial real estate services firm CBRE said in its second-quarter Austin office market report.
CBRE said the Austin office market registered a record high in net leasing activity, surpassing 1.1 million square feet of additional space leased. That was largely driven by tenants signing up for space in new buildings before had construction started on those projects, CBRE said.
Across the region, Cushman & Wakefield is tracking about 5.9 million square feet of office space currently under construction, with about 55% of that space already spoken for.
In downtown Austin alone, construction is underway on about 2.3 million square feet of space, nearly 80 percent of which is already leased, the company said.
Global tech giants including Google, Facebook and Apple “continue to make Austin an important part of their expansion plans,” said Jeff Graves, director of research for Cushman & Wakefield Austin.
“This ‘tech movement’ has bred confidence in thousands of other start-up companies looking to grow their own footprint in Austin,” Graves said. “With citywide office construction levels near 6 million square feet and demand from (tech companies) growing, both asking rates and occupancy levels should continue to rise.”
More speculative developments
Brandywine Realty Trust recently announced plans for a fourth building in the company’s Four Points Centre, an office complex near RM 2222 and RM 620 in Northwest Austin that is 95% leased.
Building IV will have 170,000 square feet, bringing the total amount in the complex to 527,000 square feet. Construction is expected to begin once city building approvals are obtained in the fourth quarter.
Four Points Centre’s location “has attracted quickly growing companies with high-quality offices, ease of access and appealing amenities,” Jerry Sweeney, Brandywine’s president and CEO, said in a written statement.
Over the past few years, new speculative developments (those that start construction without any tenants committed) are being leased prior to completion, a new pattern for Austin, Brown said.
“The size of the tenants has grown dramatically during this cycle,” Brown said. “Earlier this year we had approximately 200,000 square feet available at Riata Corporate Park and had 7 to 8 Fortune 500 companies interested. We leased the 200,000 square feet within a few months, with Allergan leasing 107,000 square feet in Buildings 2 and 3.”
Allergan PLC , a global pharmaceutical company based in Dublin, Ireland, will be moving from about 90,000 square feet at 301 Howard Lane, said Brown, who with Transwestern vice president Will Stewart negotiated the lease for the landlord.
Accesso Partners, a real estate investment firm based in Hallandale Beach, Fla., owns Riata Corporate Park. The eight-building technology campus, on about 62 acres in Northwest Austin, has 688,100 square feet of space, all of which is now fully leased.
Riata houses 17 companies that, along with Allergan, include Accenture, the international consulting firm; UnitedHealth Group; and Conduent, a technology-driven business process services company.
Allergan is moving its customer experience team to the larger space at Riata as part of a multi-year investment, Allergan spokeswoman Lisa Brown said. Allergan is growing its Austin workforce, which it said provides customer service and fields more than 1 million calls a year from doctor’s office. Allergan has about 350 Austin employees, part of about 17,000 workers globally.
Apple Inc. also has leased space at Riata Corporate Park — about 94,000 square feet in Building 8, a three-story building Apple is renovating. Apple in May told the Statesman it had signed a short-term lease for the building, which is less than a mile from Apple’s existing campus in Northwest Austin. Apple also confirmed it has leased a building at the Parmer Innovation Center in Northeast Austin.
Both leases come two years before Apple plans to open a new $1 billion corporate campus in Northwest Austin, which the company has said will employ up to 5,000 people initially.
Northwest Austin, particularly along Research Boulevard, “continues to be a magnet for market leading scientific and advanced technology companies. With its size, amenities and park-like setting, we feel Riata is the epicenter of the submarket,” Michael Adams, Accesso’s director of asset management in Texas, said in a written statement.
New amenities at Riata Corporate Park include an employee lounge, a cafe and upgraded fitness centers.
Accesso also ponied up at Riata for air conditioning upgrades. The company said Austin Energy issued a $300,000 rebate to Accesso, the largest such rebate in 10 years for the city-owned utility, Accesso said, and one that covers almost half of its investment.
Accesso invested $620,000 to add new pre-cooling technology to its HVAC (heating, ventilating and air conditioning) units. Earlier, Accesso received more than $10,000 in rebates from the city for investing in a new LED lighting system for Riata.
Accesso said the retrofit improves the comfort of tenants and their employees, and reduces electricity consumption statewide on the city’s hottest days.
The energy-efficiencies from the upgrade are expected to save Accesso an estimated $190,000 a year