Austin’s Office Market Sees Negative Absorption Amid High Vacancy and Increased Deliveries

EXECUTIVE SUMMARY

Q4 in Review

Austin’s office market saw negative net absorption in early 2025, with -372,714 sq. ft. absorbed in the first quarter, after reporting positive absorption in the previous quarter. Both Class A and Class B properties turned negative after posting positive absorption in Q4 2024 and Q1 2024. This should be short-lived as leasing activity remained somewhat balanced between quarters, only dropping 9.4%. Leasing activity was still up by 28.7% year over year. Despite negative absorption and slightly lower leasing activity, the vacancy rate only increased by 50 basis points quarterly but is still up 90 basis points over the year. On the sublease front, available space has trended downward, decreasing 5% from the previous quarter.

The construction pipeline declined significantly, down 31.1% year over year and 31.4% quarter over quarter, with 2.0 million sq. ft. currently underway, mostly concentrated in the CBD. Deliveries increased quarterly (495,000 sq. ft.) but were down slightly over the year. Rental rates increased both quarterly and annually, with full-service average asking rents reaching $45.36 per sq. ft. Class A space commanded an average of $51.90 per sq. ft., while the CBD and North/Domain submarkets continued to post the highest rates at $60.25 and $49.90 per sq. ft., respectively.

Austin Economic Update

According to the latest release of Austin’s Economic Indicators, Austin experienced modest employment growth in November accompanied by a stable unemployment rate. Average hourly wages were up, and retail sales tax collections were flat. The Austin Business Cycle Index, a broad measure of economic activity, grew an annualized 3.5% in November, slower than the 3.8% gain in October. Year over year, the index was up 1.1%. Austin’s unemployment rate remained at 3.5% in November, below the state and national rates of 4.2%. In November, the local labor force held steady, while the state’s increased 3.1% and the nation’s contracted 1.4%. Growth was broad based, with the greatest gains seen in professional and business services (2,700 jobs) and government (2,700 jobs). Sectors that saw declines included leisure and hospitality (600 jobs) and manufacturing (500 jobs).

MARKET OVERVIEW

Net Absorption Turns Negative in Q1 2025 

Net absorption—move-ins minus move-outs—was -372,714 sq. ft. for the quarter, down 199% quarterly and 207% annually. Class A properties recorded negative absorption for the quarter at -218,054 sq. ft., while Class B was at -154,660 sq. ft. Although most of the negative absorption occurred in suburban submarkets, the East/Southeast and North/Domain submarkets recorded positive absorption in Q1 2025. Notable move-ins in early 2025 include Quantic Wenzel taking 45,308 sq. ft. in Kramer 1 and LegalZoom taking 30,648 sq. ft. in Domain 3.

Construction Pipeline down, Deliveries Up

Deliveries increased over the quarter adding 495,000 sq. ft. to Austin’s inventory, up 256% from the previous quarter and flat from the same time last year. The under-construction pipeline was down 31.4% quarterly and 31.1% annually, with 2.0 million sq. ft. currently underway. Most (84%) of the construction pipeline is concentrated in the CBD in three projects that total 1.7 million sq. ft.

Leasing Activity Down, 9.4% Over Past Quarter 

Quarterly leasing velocity—comprised of new leases and renewals—stood at 1.4 million sq. ft.—this is up year over year, but down quarter over quarter. Notable new leases signed in early 2025 include BigCommerce signing a 65,050 sq. ft. lease at Domain 11, NinjaOne signing a 60,033 sq. ft. lease at 301 Congress Avenue and Spectrum signing a 40,536 sq. ft. lease at Domain Point 2. 

Vacancy Rate Up 50 Basis Points  

The overall vacancy rate in Austin’s office market is 24.8%, up 50 basis points from last quarter. Over the past few years, however, the total vacancy rate has been trending higher (up 90 basis points over the past year) due to a combination of new spec construction with minimal leasing and companies continuing to downsize their footprints when leases have expired.  On the sublease front, which has been a drag on the market, there has been a significant decrease in leasing activity and some rolling over to direct vacant space.  Available sublease space has been trending down and sits at 4.4 million sq. ft., this is down from 4.7 million sq. ft. in early 2024. 

Investment Sales Trends 

CoStar Capital Market Analytics reports the cumulative 12-month sales volume for Q1 2025 at $647 million.  For the past year, 67 office properties were sold with an average $533 price per sq. ft. and an average cap rate of 6.0%. The most Notable sale transaction occurred in late 2024, when Trammell Crow Company sold the 804,000 sq. ft. Sail Tower for a reported price of $559 million ($649 per sq. ft.).   The building is 100% leased by Google.  Also, East Side Commercial, LLC sold the 79,603 sq. ft Foundry I office building to WKM 1501, LLC in March 2025. The sales price of the Class A, 91% leased property was not disclosed.   

Rates Up for Both Quarter and Year Over Year 

Austin’s full-service average rent stands at $45.36 per sq. ft., which is up for the quarter by 5.6% and up year over year by 10.1%. Asking rents for Class A and Class B space are at $51.90 per sq. ft. and $35.74 per sq. ft., respectively.  On the submarket level, the CBD and North/Doman have the highest rates at $60.25 and $49.90 per sq. ft., respectively.

Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]