Supply outpacing demand, nudging vacancy up. The Austin office market vacancy rate stood at 9.4% moving into the fourth quarter, with year-to-date net absorption at 1.36 million sq. ft. and deliveries at 1.83 million sq. ft. The construction boom continues, with the amount of space under construction at 4.23 million sq. ft., while about half of that space is available for lease. The quoted average gross rent has continued to rise at $34.69 per sq. ft. for existing space.
Investors having harder time locating assets to acquire. RCA data reports year-to-date office sales volume in the Austin area at $1,624.8 billion, resulting in a year-over-year change of -23%. The buyer composition is made up of 65% institutional, 16% private, 11% public listed/REITs, and 7% cross-border. A recent transaction in the local market is the acquisition by Starwood Capital of a two-building, 320,000-sq.-ft. office property, Encino I and II, at 5707 Southwest Pkwy. in southwest Austin, from DRAS Advisors JV Brandywine Realty Trust. The suburban office buildings were built in 2015 and were 95% occupied at the time of sale.
The District mixed-use development planned for Greater Austin area. A $200 million 1 million-sq.-ft. mixed-use development near the intersection of Interstate 35 and State Highway 45 in Round Rock is in the works. Construction is anticipated to begin within the next year on the development, named The District, delivering a mixture of high-end office, residential, hospitality and retail space designed encouraging an environment for the region’s next major business hub.
Economy grows at a strong pace in September. The Austin economy expanded at a robust pace in September. Austin jobs grew at a 3.0% annualized rate over the third quarter with a notable exclusion of professional and business services, which fell primarily due to declines in administrative services. The local unemployment rate fell to 2.7%, well below the 4.0% Texas and 4.2% U.S. averages.
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