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Austin's Office Space Dilemma: Navigating a Glut in the Market

Austin's Uncommitted Office Space Exceeds 3 Million Square Feet

In the bustling city of Austin, Texas, the office sector has seen rapid growth over the last ten years, making it one of the most vibrant markets in the United States. However, this expansion has led to a significant accumulation of unused office space, with vacancy rates on the rise and potentially becoming among the highest nationwide.

Since 2017, the Austin market has welcomed nearly 24 million square feet of new office developments. In contrast, the absorption rate — the amount of space leased out — has only accounted for 10.3 million square feet during this timeframe. This discrepancy has resulted in a growing surplus of approximately 13.7 million square feet, a figure that's projected to swell to 19 million square feet by the close of 2024, coinciding with the completion of new projects.

Previously, the Austin office market maintained a balance between supply and demand, but the year 2020 marked a significant turning point. Development projects continued to break ground up until 2022, leading to an anticipated addition of over 4.5 million square feet of office space in 2024 alone. This upcoming space predominantly features high-grade, four- and five-star offices located in urban areas. Key developments include the Springdale Green project in East Austin, boasting 830,000 square feet, and the Uptown ATX in the Domain area, adding 363,000 square feet to the market.

However, the market faces declining demand, with a 12-month trailing absorption rate showing a negative 1 million square feet. This downturn reflects a trend of businesses downsizing their office footprints, influenced by evolving operational needs. The forecast for 2024 predicts a further decrease in demand, with an expected 800,000 square feet of negative absorption, particularly affecting suburban office locations. Consequently, vacancy rates are anticipated to hit 20% by year-end, positioning Austin's market as the second most vacant in the United States.

Despite the current challenges, a significant reduction in new construction starts, down 80% annually, may eventually stabilize the vacancy rate. However, projections suggest the vacancy rate will continue to grow, potentially peaking at 22% in the first quarter of 2026. This scenario underscores the critical balance between development and demand in maintaining a healthy office market in Austin.

Source: CoStar, MMCG

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