Downtown Class-A Office Rent Surpasses Average Rate

Ryan Poulos says the Austin area continues to see strong demand in every sector.

AUSTIN, TX—Second quarter commercial real estate data indicate continued strong demand for office, industrial and retail space throughout the city as vacancy rates remain exceptionally low, according to the Real Estate Council of Austin (RECA). While overall office vacancy rates actually increased slightly from 8.45% in the first quarter of 2016 to 8.98% in the second quarter, downtown class-A office space surpassed an average rental rate of $50 for the first time in history. “The Austin office market this summer continues to sizzle. Although overall vacancy rates increased marginally, average rental rates rose slightly to a full-service rate of $33.54 per square foot annually, with demand for high-end space remaining stronger than ever,” said Ryan Kasten , managing director with Cushman & Wakefield Austin. “Downtown class-A office space made history by surpassing the $50 mark for the first time, with an average rental rate of $50.21. This upward trend in rates looks to continue as demand for premium Austin office space outpaces supply. With more than 700,000 square feet of additional downtown class-A space set to deliver over the next four quarters, it will be interesting to see what impact this has on the market overall.” In the retail sector, vacancy rates remained steady from the first quarter of 2016 to the second quarter at 3.5%. Quoted rental rates have increased quarter-over-quarter for more than two years, reaching an average quoted rate of $27.70 gross per square foot in the second quarter of 2016. That’s up from $24.68 gross per square foot in the second quarter of 2015. “Austin’s fast-growing population creates a strong demand for retail,” said Karen Judson , vice president with Transwestern . “Older retail centers are undergoing extensive renovations to capitalize on this demand, such as Lincoln Shopping Center in North Austin rebranded as The Linc and Highland Village in North Austin redeveloped as The Cresent .” Judson also said under-construction lifestyle centers such as Northside , the final phase of the Domain in North Austin and Belterra Village in Dripping Springs are seeing active preleasing. Domain’s Northside grand opening is planned for September and she said it is already 80% preleased to retail tenants such as Nordstrom, Restoration Hardware, Second Bar + Kitchen and SoulCycle . Overall industrial vacancy rates had an uptick in vacancy rates at 7.7% in the second quarter of 2016 compared to 4.65% in the first quarter of 2016. Ryan Poulos , RECA director of communications tells GlobeSt.com: “The Austin area continues to see strong demand in every sector including the retail, office and industrial segments. Vacancy rates remain low, particularly for high-end office space as class-A office space continues to see record demand, crossing an average rental rate of $50 for the first time ever. Retail vacancy rates did remain steady from the first quarter of 2016 to the second quarter, but quoted rental rates have increased quarter-over-quarter for more than two years, and remains highly competitive.” RECA aggregates updated commercial real estate statistics on a quarterly basis. Statistics are provided by Cushman & Wakefield Austin (office, industrial) and Transwestern (retail).