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Austin Office Market Hits Historic Highs

by Kevin Kirkpatrick, San Antonio, May 2019

 

The office market is booming in the Texas state capital, setting records for increased absorption, rising rents, and reduced vacancies. Strong market fundamentals are leading to higher property assessments and likely higher tax bills.

 

Absorption

 

First quarter absorption registered 548,351 sq. ft. of positive new demand, according to the CBRE Austin Office Report. The numbers reflect mostly large-scale tenants occupying pre-leased space in buildings that were delivered in late 2018.

 

With 79% of the 1.3 million sq. ft. of new offices delivered in the first quarter, 2019 will continue to see strong absorption throughout the rest of the year as tenants officially occupy their pre-leased space.

 

Rents/Vacancies

 

Robust demand continues to push asking rents to record highs. The citywide NNN asking rate increased $0.86, climbing to $26.90 per sq. ft. This upward pressure brought the citywide Full Service Gross asking rate to $37.62 per sq. ft. – a new high for the market.

 

Coupled with the increase in asking rents, citywide vacancy fell 30 basis points to 9.3%.

 

What This Means for Property Taxes

 

The recent release of 2019 notices of assessment indicates office properties increased on average 11% citywide. The Central Business District bore the brunt of the increase averaging 13%, with some buildings seeing increases as high as 18%. Top-tier downtown office buildings have surpassed the $700/sf level for the first time in city history with tax cost approaching $16/ft on top level properties. Prudent analysis of lease rates, possible deferred building maintenance, and comparable analysis of competing properties can help minimize these increases.