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Austin Office Construction And Occupancy Decline

Austin Office Construction And Occupancy Decline

Austin office direct occupancy is down this quarter due to a significant influx of supply that outpaced demand, according to PMRG's Q2 '16 office report. The office market saw a positive absorption of 100k SF this quarter, but occupancy fell 40 bps to 89.4%. PMRG is predicting that strong job growth will lead to an increase in demand in the coming months.

Class-A asking rents have increased 6.2% over the last 12 months, jumping $0.24/SF this quarter alone, to an average of $36.28/SF. In Class-A, rents are at their highest level on record, up 26.4% since 2010. Increasing 26.5% since 2011, Class-B rents are at a historical high as well. PMRG attributes these hikes to rising demand, the addition of new inventory and rising operating expenses due to property tax increases.

There is 1.4M SF of office space under construction in Austin, below the 15-year historical average and significantly below the cyclical peak of 3.2M SF underway in the first quarter of 2015. Office buildings delivered during Q2 2016 were 69.9% pre-leased. Total delivery in 2016 is expected to be a little over 900k SF, less than half of last year’s 2.5M SF.

Related Topics: PMRG