Austin’s Office Market Experiences a Positive Surge in Absorption
EXECUTIVE SUMMARY
Austin’s office market recorded 1.1 million sq. ft. of positive net absorption in Q1 2026, a sharp increase from the previous quarter’s negative absorption. The large shift in absorption was driven by the sale of the former 1.2 million sq. ft. Class A 3M office campus on River Place Blvd., purchased by SB Energy. Absorption would have remained negative if the transaction had not occurred. Class A properties recorded positive net absorption, while Class B properties posted negative absorption.
The construction pipeline shrank by 30.7% over the quarter, and deliveries dropped significantly by 95.8%. Rental rates rose moderately over the year and grew slightly on a quarterly basis. Class A properties saw an increase in the average rental rate, while Class B property rent was flat over the quarter.
SUPPLY & DEMAND
KEY MARKET INDICATORS
MARKET OVERVIEW
Austin Economic Update
Austin’s unemployment rate was 3.7% in January, up from 3.6% in December, but below the state and national rates, both at 4.3%. In the three months ending in December, the local labor force increased at an annualized rate of 1.3%. The most significant gains were in government, with 2,800 jobs; education and health services, with 1,500 jobs; and construction and mining, with 1,200 jobs. Sectors that declined include professional and business services, which lost 1,300 jobs, and leisure and hospitality, which lost 700 jobs. Average hourly earnings increased to $36.43 in December.
Net Absorption Surges
Net absorption—move-ins minus move-outs—sharply increased over the quarter, moving from negative -135,594 sq. ft. in Q4 to positive 1.1 million sq. ft. in Q1 2026. The large shift in absorption was driven by the sale of the former Class A 3M office campus on River Place Blvd., which was reportedly purchased by a data center. Absorption would have remained negative if the transaction had not occurred. The removal of over 1 million sq. ft. pushed the overall vacancy rate down 130 basis points.
Class A properties contributed all the positive net absorption, while Class B properties recorded -67,924 sq. ft. of negative net absorption in Q1 2026. Northwest Class A properties contributed the highest amount of positive absorption of 1.1 million sq. ft., while the Southwest submarket posted the highest amount of negative absorption, -120,448 sq. ft. Notable move-ins in Q1 2026 include IBM taking 320,000 sq. ft. of sublet space at Domain 12 and NVIDIA Corporation taking 99,000 sq. ft. in One Uptown.
Deliveries Down and Construction Pipeline Up
No deliveries were added to Austin’s office market inventory in Q1 2026. The under-construction pipeline rose 91% quarterly, but was down 85% annually, with 191,850 square feet currently underway. The projects under construction are located in the South, Southeast, and Cedar Park/Georgetown/Round Rock submarkets.
Quarterly and Annual Leasing Activity Down
Quarterly leasing velocity—comprised of new leases and renewals—stood at 1.4 million sq. ft., down 2.4% from the previous quarter and down 26.7% year over year. Notable new leases signed in Q1 2026 include NXP Semiconductors leasing 121,000 sq. ft. and 104,000 sq. ft. in two buildings at the Champion Office Park in the Northwest submarket, and Procare Technologies taking 34,000 sq. ft. at 221 W 6th St. in the CBD submarket.
Vacancy Rate Drops
The overall vacancy rate in Austin’s office market is 23.3%, 130 basis points lower than the previous quarter, driven by 1.1 million sq. ft. of positive absorption. This is good news, as the past few years have seen the vacancy rate trend higher due to minimal leasing in new spec construction and tenants’ decisions to downsize footprints. Sublease vacancy has remained low, currently sitting at 2.3% (1.9 million sq. ft.).
Investment Sales Trends
CoStar Capital Market Analytics reports a cumulative 12-month sales volume of $230 million for Q1 2026. Over the past year, 68 office properties were sold, with an average price of $152 per square foot and an average capitalization rate of 6.5%. The most notable sales transaction that occurred in the first quarter of 2026 was SB Energy’s purchase of the 1.2 million sq. ft. former 3M campus, located on River Place Blvd. from Karlin Real Estate for an undisclosed price. SB Energy, a SoftBank Group company, recently announced a partnership with OpenAI as part of Stargate.
Average Asking Rental Rates Decrease
Austin’s full-service average rent stands at $45.02 per square foot, which is down 1.3% for the quarter; however still up 1.7% year-over-year. Asking rents for Class A and Class B space are $53.14 and $36.59 per sq. ft., respectively. At the submarket level, CBD and South submarkets have the highest rates, at $61.13 and $51.85 per sq. ft., respectively.
