• Austin office listing rates up 4.52% year-over-year, averaging $43.54 
• Average office vacancy falls to 15.78%, continuing its descent 
• Office deal flow this year is already at 80% of last year’s total 
• 7.5 million square feet of office space currently under construction

Office Listing Rates Continue Upward Climb, Rising 4.52% Y-o-Y 

The average asking office rents in Austin, Texas, were at $43.54 per square foot in July, maintaining their climb from last year’s lows. Similarly, full-service equivalent listing rates as of this month were up 4.52% year-over-year (Y-o-Y), and Austin has been benefiting from renewed interest, primarily from the tech industry. In fact, many Silicon Valley companies have opened or will be opening offices here — most notably, Apple’s West Parmer Lane Campus that’s under construction north of downtown. Additionally, current- and post-pandemic leasing strategies that expand concessions and increase term flexibility are also aiding the uptick in leasing activity as the economy continues to reopen.

However, asking rents varied across the submarkets, with the highest rate increase occurring in the Northeast submarket at 13.44%.  Other submarkets with a higher concentration of office properties — like the Southwest and Northwest — increased their listings rate by 7.47% and 2.73%, respectively, to $40.30 and $36.49 per square foot. Conversely, the downtown submarket registered an uptick of 1.03% to $58.62 per square foot. Even so, it’s still one of the most expensive submarkets in Austin. 

Average Vacancy Rate Continues Descent from Highs 

Austin office vacancy rates at the beginning of 2020 were consistently below 10% but began ticking upward in March as stay-at-home orders became more widespread. They peaked in March of this year at 16.54% but have since come off those highs and currently sit at 15.81%, continuing their slow trickle downward. But vacancies throughout the market range widely: they’ve reached as high as 34.64% in the East submarket — which sits between I-35 and MLK-183 — whereas the submarkets of North and Round Rock sit at 5.51% and 5.92%, respectively. 

“The tech explosion is really what is making Austin different. ‘Texodus’ is a real thing. Big and small, everyone is grabbing a seat at the Austin table,” said Peter Kolaczynski, a senior manager with CommercialEdge, “Austin vacancy rates are nudging off their highs as Texas continues to outpace the country in percentage of workers returning to the office.”  

And, as vaccines become more widespread and the global economy enters the post-COVID era, Austin stands to pick up where it left of in early 2020 as the neo-Silicon Valley. 

Office Deal Flow Already at 80% of Last Year’s Total Number of Deals action Volume Rallies to Nearly $1 Billion Through July 

Meanwhile, office sales in Austin are showing signs of bouncing back, with 42 properties having changed hands so far this year — already nearly 80% of the total number of deals that were completed in Austin in 2020. And, while pre-pandemic deal flow levels aren’t quite there yet — 104 deals closed in 2019 — transaction volume is on pace to surpass those levels.  

In fact, nearly $2 billion in transactions were reportedly completed in Austin in 2019 — and the city is already halfway there this year with a reported transaction volume of nearly $1 billion so far this year. High-quality assets are driving this market, with the largest deal completed last month: Kilroy Realty purchased the recently completed 708,000-square-foot Indeed Tower from Trammell Crow for $580 million, or $818.70 per square foot. 

1.2 Million Square Feet of Office Space Already Began Construction This Year, More Than 7.5 Million on the Way 

Last year, Austin’s office development market started more than 2 million square feet of office space construction. Many, if not all, of those projects had gone through approvals and had been ready to start construction since before the pandemic so there were few delays. Construction remained an essential service and continued through the pandemic. 

So far this year, Austin has started more than 1.2 million square feet of office space with a total of 7.5 million square feet to be added over the next two years. Although many of these projects have been in the planning and construction stages since before the pandemic, their completions will actually usher in a new era of buildings that will be labeled as post-pandemic office buildings. Likewise, many of these properties have made adjustments and other modifications throughout the construction process to accommodate more flexible work environments and work habits that the “new normal” may require. 

Methodology 

The monthly CommercialEdge Austin office report covers properties that are at least 5,000 square feet in size. Listing rate information refers to full-service rates or “full-service equivalent” for spaces available as of the reporting period. Vacancy reporting includes sublease data and excludes owner-occupied properties. Sales and price-per-square-foot calculations do not always include portfolio transactions or property exchanges with unpublished dollar values. 

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• April’s national average rent climbed to $6.54 per square foot 
• Port markets of Los Angeles, Inland Empire and Seattle experienced highest growth in rent  
• Vacancy rate remained steady at 6.1% as new construction was absorbed to meet demand 
• Industrial transaction volume in Los Angeles crossed $1 billion 
• 57% of the nearly 400 million square feet of new supply was in top 20 markets 

LA, Inland Empire & Seattle See Highest Rent Growth in 12 Months 

National average rates for industrial real estate grew 4.7% year-over-year (Y-o-Y) in April, climbing to $6.54 per square foot. However, the coastal cities saw more growth than Midwestern cities, and some of the highest rental rates in the country are along California’s coast. The essential Port of Los Angeles, adjoining Port of Long Beach and Los Angeles International Airport are largely responsible for rates rising to nearly $10 per square foot in the region, as well as a vacancy rate of just 4% as e-commerce continues its expansion. 

By comparison, inland cities were more stable. For instance, Kansas City, Mo., and Denver grew very little in the last year — just 1.5% and 1.3%, respectively. But Chicago’s rent growth is a bright point for the region, with April rents here rising 3.3% Y-o-Y to $5.29 per square foot. Part of this stability is due to the availability of developable land. 

Similarly, the spread between average overall rents and new leases shows that port cities are seeing the highest prices — nationally, recent leases averaged 15% higher than the overall average rent — but there are some inland exceptions. For example, in Chicago, the average rate of new leases signed in the last 12 months was $6.89 — a 30% premium to the average reported rate for the market in April. Meanwhile, the northeastern port cities of Boston and New Jersey also saw recent leases going for high premiums — 33% and 37%, respectively. 

Across the country, Orange County maintained its status as the most expensive market by actual price, with industrial real estate here commanding $10.79 per square foot last month. Not far behind, the Bay Area averaged $10.47 per square foot for industrial leases last month as the second-most expensive industrial market in the country. 

Driven by Consistent Demand, National Industrial Vacancy Rates Remain Steady  

At the same time, national vacancy remained quite steady at 6.1% last month as the increased demand for industrial space seems to be being met with new supply coming online. Even so, the vacancy rate varied across the markets we surveyed — ranging from 2% in Inland Empire to 11.4% in Boston through the end of April. 

What’s more, the ports of Los Angeles and Long Beach continue to see record month after record month, in part because e-commerce has continued the upward trajectory that it has been on for the past year. As a result of this tightening of space availability and typically high cost of land, new supply will be slower to come to market, thereby further increasing rents. Additional details on individual market vacancy rates and lease spreads are available by downloading the full report at the bottom of this page. 

LA Volume Surpasses $1 Billion, Miami Transactions Near Last Year’s Volume 

$13.2 billion in transactions have closed as of April 30^th across the U.S. industrial markets we tracked for our latest report. While Q1 ended with $8.1 billion in sales, April was a busy month, closing another $5.1 billion in transactions. The sale price per square foot for industrial space kept climbing in April 2021 as well — 22% higher year-over-year. On average, U.S. industrial assets traded for $109 per square foot last month. 

Notably, investor interest in Los Angeles remained high as the total transaction volume for the market crossed $1 billion in April. Likewise, the adjacent Inland Empire was right behind LA with $854 million in volume already this year. Plus, with these same markets recording the largest 12-month rental rate increases nationwide, investor appetite for these assets is expected to remain strong for the foreseeable future.  

On the opposite coast, Miami’s transaction volume has also exploded this year with $439 million in transactions in just the first four months of the year — already 83% of last year’s total volume. A significant portion of this volume was CenterPoint Properties’ acquisition of Countyline Corporate Park in Hialeah. The deal highlights the appeal of properties with in-place leases and large tenants as the property is fully leased by Home Depot. 

DFW Delivering 26 Million Square Feet, Kansas City & Denver Continue Expanding Outward 

In April, there was 388.7 million square feet of new industrial space under construction across the country. Of this, 57% is located in the top 20 markets, with 26.6 million square feet set to come online in the Dallas-Fort Worth metroplex alone — representing 3.3% of its existing industrial stock. Further north, Chicago is adding the second-highest amount of industrial square footage and is set to deliver another 18.8 million square feet this year. 

Part of the reason for softer prices in the more inland markets is the availability of developable land near major Midwestern logistics hubs — like in Kansas City, where developers can build quickly to meet demand. Currently, there’s more than 8 million square feet of industrial space under construction in Kansas City with another nearly 23 million planned for the near future. Similarly, prices in Denver remain soft as the city is set to deliver more than 9 million square feet of industrial space this year. 

Data collected for this report also showed that nearly 450 million square feet of industrial property was in the planning stages, and forecasts point to a steady annual yield of between 250 and 350 million square feet through 2026. 

Download the full May 2021 report for a full picture on how U.S. industrial markets fared through April 2021, including insights on industry and economy recovery fundamentals. 

For an even deeper dive into industrial fundamentals, supply forecasts and the overall effect of the pandemic, learn more from CommercialEdge Senior Research Manager, Peter Kolaczynski, and Yardi Matrix Vice President, Jeff Adler, who participated in the recent Industrial & Office National Outlook Webinar. 

Methodology 

The monthly CommercialEdge national industrial real estate report considers data recorded throughout the course of 12 months and tracks top U.S. industrial markets with a focus on average rents; vacancies (including subleases but excluding owner-occupied properties); deals closed; pipeline yield; and forecasts, as well as the economic indicators most relevant to the performance of the industrial sector. For a detailed methodology, download the full report above. 

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