The Austin Office Broker’s Perspective on the CRE Market

Monday, January 16, 2017

Austin

The Austin Office Broker's Perspective on the CRE Market

by Ryan Clark

The Austin economy continues to expand with major employment growth in Health and Private Education Services, Financial Services, and Leisure and Hospitality. Health and Private Education services saw 11.7% growth from September 2016 to November 2016. This growth, however, was offset by a sharp decline in both Manufacturing and Construction, which fell 9.2% and 7.9%, respectively. Since the end of 2015, job growth in Austin has slowed dramatically. Austin grows about 1.1% faster than the state, but over the last two months leading into November 2016 we have seen anemic growth where the state is outpacing us. So how is this affecting the Austin office market’s rental rates?

In Q4 2016, the average asking rental rate was $32.28 per sq. ft. This price still indicates a healthy market; however, it is a slight decline from Q3 2016’s $32.68 per sq. ft. So what does this mean for your office lease? It depends. When looking at the data, we need to be careful when drawing our conclusions. This could be an emerging trend, or this dip could be explained by a number of external factors, such as the presidential election.

Ultimately, when signing an office lease you need to understand what cycle the market is in. Are we in a bull or bear market? Should I sign a short- or long-term lease? The intuitive reaction in good economic conditions would be to enter into a long-term lease, and vice versa in slower economic conditions. However, flipping that paradigm might offer a better solution. For example, when the is healthy, the cost of real estate is on the high end of the cycle. If you sign a long-term lease when economic conditions are positive, you are likely locking in higher rates during that period of time. There are a number of factors that impact the decision to sign a long- or short-term lease, but not understanding the economic conditions of the market is a surefire way to leave money on the table.