Austin’s Office Market Experiences a Slight Uptick in Negative Net Absorption. Fortunately, Vacancy Remains Unchanged and Deliveries are Non-existent in Q2

EXECUTIVE SUMMARY

Q2 In Review

Austin’s office market recorded -42,411 sq. ft. of negative net absorption in Q2 2025, pushing the year-to-date total to negative 415,125 sq. ft. Fortunately, the small amount of negative absorption did not move the vacancy needle higher. Class A properties recorded 182,387 sq. ft. of positive net absorption, while Class B properties posted negative absorption of -224,798 sq. ft. Leasing activity slowed between quarters, dropping 23.1%; however, leasing activity was 26.3% higher than at the same time last year. The vacancy rate remained unchanged between quarters at 24.8% but is still up 40 basis points year-over-year. On the sublease front, available space has trended downward, decreasing 8.3% from the previous quarter.

The construction pipeline increased 8.1% quarter-over-quarter but decreased 23.4% year-over-year, with 2.1 million sq. ft. currently underway, primarily concentrated in the CBD. Deliveries declined from 495,000 sq. ft. in Q1 2025 to zero sq. ft. in Q2 2025. Rental rates decreased 0.7% quarterly to $45.05 per sq. ft. and increased annually by 5.5%. Class A space commanded an average of $52.01 per sq. ft., while the CBD and North/Domain submarkets continued to command the highest Class A rates at $63.64 and $58.58 per sq. ft., respectively.

Austin Economic Update

Austin’s unemployment rate was 3.5% in May, below the state and national rates of 4.1% and 4.2%, respectively. In May, the local labor force decreased at an annualized rate of 0.4%, while the state’s labor force increased 1.9% and the nation’s fell 4.3%. Austin employment increased at an annualized rate of 2.7% in May, surpassing the 2.4% growth rate in April. In the three months ending in May, employment increased 1.9%

The most significant gains were in leisure and hospitality (2,150 jobs) and trade, transportation and utilities (1,800 jobs). Sectors that declined include professional and business services (-770 jobs) and information (-700 jobs). Austin’s year-to-date employment in May grew 1.5%, slower than for Texas, which had 2.5% growth, but faster than the nation’s gains of 0.9%.

Average hourly earnings rose to $36.29, reflecting a year-over-year increase of 5.8%. At the same time, apartment rents in Austin fell 2.7. As of May 2025, the median sales price for the Austin metro was $449,900, down 1.6% year-over-year. The median sales price is highest in the city of Austin itself, at $595,000, and lowest in Caldwell County, at $317,990.

MARKET OVERVIEW

Net Absorption Remains Negative in Q2 2025

outs—was -42,411 sq. ft. for the quarter, which pushed the year-to-date total to -415,125 sq. ft. Class A properties were the bright spot in Q2 2025, recording 182,387 sq. ft. of positive net absorption, while Class B was at -224,798 sq. ft. The Southwest submarket recorded the highest amount of positive absorption in Q2 2025, posting 165,933 sq. ft., while the CBD posted the highest amount of negative absorption, -201,181 sq. ft. Notable move-ins in Q2 2025 include Action Behavior Centers taking 94,500 sq. ft. in Dimensional Place II in the Southwest submarket and BigCommerce taking 65,050 sq. ft. in Domain 11 located in the North/Domain submarket.

Construction Pipeline up, Deliveries Down

There were no deliveries in Q2 2025. The under-construction pipeline increased 8.1% quarterly but decreased 23.4% annually, with 2.1 million square feet currently underway. The majority (78%) of the construction pipeline is concentrated in the CBD.

Quarterly Leasing Activity Down 23.1%

Quarterly leasing velocity—comprised of new leases and renewals—stood at 1.1 million sq. ft., which is up year over year, but down quarter over quarter. Notable new leases signed in Q2 2025 include Flosports’ signing of a 29,600 sq. ft. lease at Bouldin Creek, Aurora Energy Research’s signing of a 25,800 sq. ft. lease at Mueller Business District, and Parkhill’s signing of a 13,981 sq. ft. lease at Uptown ATX.

Vacancy Rate Rate Remains Unchanged from Previous Quarter

The overall vacancy rate in Austin’s office market is 24.8%, unchanged from the previous quarter. Over the past few years, however, the total vacancy rate has been trending higher (up 60 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, has been trending downward since reaching an all-time high of 4.7 million sq. ft. in Q1 2024 and now stands at 4.3 million sq. ft.

Investment Sales Trends

CoStar Capital Market Analytics reports a cumulative 12-month sales volume of $770 million for Q2 2025. Over the past year, 61 office properties were sold, with an average price of $384 per square foot and an average capitalization rate of 6.2%. Some notable sales transactions that occurred in the first half of 2025 include the City of Austin’s purchase of 3300 N Interstate 35 – University Park from Lionstone Partners, LLC for $26 million or $126 per sq. ft., and Buchanan Capital Partners’ purchase of a three-office building portfolio, totaling 115,853 sq. ft., from Wedge Commercial Properties for an undisclosed amount. The buildings, known as Westbank Pointe Office Park are located in the Southwest submarket.

Rates Drop Marginally Over the Quarter but Still Up Year Over Year

Austin’s full-service average rent stands at $45.05 per square foot, which is down 0.7% for the quarter and up 2.5% year-over-year. Asking rents for Class A and Class B space are at $52.01 per sq. ft. and $35.84 per sq. ft., respectively. At the submarket level, CBD and North/Doman have the highest rates, at $60.66 and $50.06per per sq. ft., respectively.

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