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Austin's High-Tech Office Market

by Kevin Kirkpatrick, San Antonio, October 2018

 

Austin is home to many of the giants in the high-tech industry including Dell, Facebook, Google, Amazon, Apple, Cisco, IBM, Indeed, and Oracle. As these companies continue to grow, their need for more office space is impacting assessed values throughout the area.

 

The top tech firms in the region account for a very high share of Austin’s tenant base. An analysis of the top 10 tech companies in Austin shows that these firms own or lease approximately 6 million square feet or nearly 10% of the market. The growing presence of these firms is creating tight market conditions, according to a report by Savills Studley.

 

"Top tech firms in Austin are taking different routes to secure additional space for their growing workforces. Some are expanding on corporate campuses, while others are making aggressive moves on future development sites. In general, the competition for space is becoming as fierce as the battle for talent," said Brad Hauser, research director of Savills Studley.

 

The largest transaction reported in the second quarter of 2018 was a 307,000 square foot lease signed by Indeed for the top 10 floors of Block 71 in downtown Austin. The company plans to consolidate downtown locations at the new building upon its completion in 2021. Several other tenants are looking for considerable space. Austin Energy, for example requires 300,000 square feet so it can consolidate its 1,700 employees, the report says.

 

Unparalleled Growth

 

Austin's reputation as a vibrant, livable city is attracting new residents and employers at record levels and is a major contributor to the remarkable growth of the city's office market. The state capitol was recently ranked as the Number One Boomtown in the U.S. by financial advising site magnifymoney.com for attracting Fortune 500 companies and smaller tech firms.

 

Austin has approximately 50 million square feet of office space -- but that's not enough. More than 3.8 million square feet of new space is currently under construction. The direct vacancy rate of 8.8 percent comprised of 4.4 million square feet available and a sublet vacancy rate of 2.4 percent with 1.2 million square feet available contributes to the upward trajectory of office rents, which have hit a record high of $52.37 per square foot, according to Cushman & Wakefield.

 

Assessments Keep Going Up

 

The result of the positive statistics cited is the local appraisal district has considerably increased office assessments over the last several years. Top tier office assessments, which were in the $300-$400 per square foot (psf) range just a few years ago are now tracking to $600–$700 psf.

 

A thorough understanding of current leases, lease renewals and new construction, which may affect absorption, are all crucial issues that should be addressed with the assessor to assure the current assessment is fair and equitable.