Facebook, Amazon to be neighbors in Austin’s second downtown, plus other big Q4 office leases

Jan Buchholz | Senior Staff Writer
Source: Austin Business Journal

If there was any doubt about the depth of commitment in Austin by global corporate heavy hitters Amazon.com Inc. and Facebook Inc., worry no more.

Both companies signed big offices leases in Austin during the fourth quarter of 2016, and both are moving into Domain 8 — a 12-story, 290,000-square-foot office building under construction in The Domain neighborhood about 10 miles north of downtown.


The office development at 11601 Alterra Parkway is a partnership between Austin-based Endeavor Real Estate Group and Tier REIT in Dallas.

The leases were reported in the 4Q16 Office Report compiled by Newmark Grubb Knight Frank ( go here to download the PDF). Amazon (Nasdaq: AMZN)currently leases space at Domain 7 nearby. Facebook’s (Nasdaq: FB) dominant office in the Austin market is downtown at 300 W. Sixth St., where the California-based social media company is spending millions of dollars to remodel its offices.

The Domain may be the most remarkable real estate story in Austin — given that the 300-acre site near North MoPac Expressway and Braker Lane was mostly undeveloped 10 years ago. Now it’s being referred to as Austin’s second downtown with millions of square feet of new offices, new apartments and the new Domain Northside shopping district.

Throughout the metro area, commercial real estate leasing and sales continue on a torrid pace. During the fourth quarter, citywide vacancy dropped again to 9.8 percent, down from 10.4 percent in fourth quarter 2015. Even so, according to NGKF research experts, there appear to be hints of a slowdown, owed possibly to the tech sector.

“While demand in 2016 was healthy, it was less robust than 2015, suggesting the technology leasing cycle is tapping the brakes,” the report states.

Asking rates are down about a dollar per square foot from the third quarter average high of $33.03, but that’s still more than the average of $31.68 per square foot during the fourth quarter a year ago.

Here are some other highlights of the report:

• The biggest investment sale in the fourth quarter was the Offices at Braker, which was acquired by Austin-based World Class Capital Group in late 2016 for $84,750,000. That’s a whopper overall price but the multi-building property in North Austin not far from The Domain incorporates nearly 550,000 square feet. That makes the total cost a more modest $155 per square foot.

• The most expensive office investment sale on a per square foot basis was 823 Congress Ave., which was purchased by Brickman, a New York-based real estate company, which previously owned Lavaca Plaza at 504 Lavaca St. The composite price for 823 Congress was $63 million or $347 per square foot.

• Other major investment sales were Aspen Lake Two in Northwest Austin. Azrieli Group, an Israel-based investor, purchased the 128,990-square-foot property for $40 million or $310 per square foot; Mark IV Capital Inc. in Newport Beach, California purchased the 136,444-square-foot Pecan Park I in the far northwest submarket for $35.5 million or $260 per square foot; Seamless Shoal Creek Ltd., an Austin-based entity, purchased the 151,917-square-foot Exchange Park at 7800 Shoal Creek Blvd. in North Austin for $29.2 million or $192 per square foot.

• The scarcest amount of top quality, or Class A, office space continues to be in the Central Business District downtown where the vacancy rate is a paltry 5.8 percent. At the opposite end of the spectrum, Class A office space is in ample supply in the Round Rock/Georgetown/Cedar Park areas north and northwest of the city. Perhaps surprisingly, the vacancy rate for the newest office space in that suburban area is 28.2 percent — much higher than might be expected.

• The asking rate for downtown Austin Class A office space — the most expensive in the total market — averages $51.06 per square foot.

• The submarket with the best rate for Class A office space is in the east/northeast area with asking prices averaging $25.60 per square foot.

Jan Buchholz covers commercial and residential real estate, construction and architecture and retail and restaurants for the Austin Business Journal.