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Competition for Talent & Space Heats Up in Austin

The competition for a limited supply of talent and space intensified in Austin during 2015. As of year-end 2015, the region was 34.0%% above its prior peak in office-using employment, exceeding growth rates of 32.0% in San Francisco and 33.0% in Silicon Valley by a hair. As is the case in Northern California, Austin tenants faced rising costs of doing business during 2015, with escalating wages and rising rents accounting for two of the largest hits to their bottom line.

 

Rental rate growth started to gain traction in the CBD, Northwest and North submarkets during 2014 and escalated in these submarkets over the course of 2015. Year-on-year, overall asking rent in these submarkets increased by 7.9%, 4.7% and 16.2%, respectively. Rental rate growth has also spread to some of the lower-cost alternatives east of IH-35. Overall asking rent for the region as a whole spiked by 9.0% year-on-year.

Pre-leasing activity in properties under construction as well as in proposed buildings is expected to be sustained in 2016. However gaining approvals for new development remains a sticking point that is hampering the desire of developers to respond to the strong demand. Without approvals for new development, it appears competition for space and talent will remain heated for the foreseeable future in Austin.

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Keith DeCoster

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