Northwest Austin office market remains strong
So far in 2013, an increase in office building construction along with a low vacancy rate and high absorption indicate Northwest Austin continues to be a hotbed for commercial real estate activity.
“That far northwest area has seen the best absorption of any market in the city by far,” said Erin Morales, first vice president at commercial real estate firm CBRE Group Inc. “Year to date, they are responsible for over 30 percent of the absorption in the entire city just in that Lakeline area, which is part of the far northwest submarket,” she said.
Absorption is the rate at which rentable space is leased during a specific period of time.
CBRE’s 2013 third quarter office market report indicates that Austin has the lowest vacancy rate it has seen in 12 years. Northwest Austin’s vacancy rate, 11 percent, is the second-lowest in Austin, trailing only Southwest Austin, which has an 8.1 percent vacancy rate.
CBRE defines the Northwest submarket as the area west of MoPac between Lady Bird Lake and Howard Lane. The far Northwest market is north of McNeil Drive and includes Cedar Park. The North Central submarket covers the area between MoPac and I-35.
Demand for office space has also driven development of three new projects in Northwest Austin, according to CBRE.
In 2013, Endeavor Real Estate Group broke ground on two office projects at The Domain. Domain 2, located near the new Whole Foods Market that opens Jan. 15, broke ground this summer and was pre-leased to HomeAway Inc., an Austin-based online marketplace for vacation home rentals. HomeAway will occupy four of the five floors, Endeavor Vice President Jonathan Tate said. Domain 2 also has square feet available on the first floor dedicated for retail, but tenants have not yet signed leases, he said.
“Most importantly, we just think that there is a lot of pent-up demand for office space at The Domain,” he said. “It has been a few years since anything has been delivered.”
Tate said many commercial tenants now view The Domain as a secondary downtown area because it has similar features to downtown Austin, such as housing, a park, a jogging trail, shopping and restaurants.
“A natural evolution of any city is to have a secondary downtown, and that is what we are hoping The Domain becomes,” he said.
Endeavor’s most recent office development, Domain 7, broke ground Sept. 16 and is located across from IBM. The project is a six-story building that will have 222,000 square feet of space. Domain 7 is expected to be complete in September 2014.
“[Domain 7] sits right next to the tech corridor, which is [in] Northwest Austin, so we think it will [appeal to] large, corporate, mainly technology-focused, creative office tenants,” he said.
Of the 1.25 million total square feet of office space at The Domain, 99 percent is leased by companies such as Blackbaud, Electronic Arts and the Texas Culinary Academy, according to Endeavor. Domain 7 is The Domain’s sixth office project.
In August, Endeavor also started construction on Champion Office Park, located at Capital of Texas Hwy. and FM 2222. The project is expected to be completed September or October 2014. The office park will have about 220,600 square feet of space between two buildings and a multilevel garage with 647 parking spaces. The office park is likely to attract businesses in the area that want a modern building with current technologies and amenities, Endeavor Vice President Travis Dunaway said.
National real estate developer Patrinely Group could break ground in early 2014 on an expansion to office park Aspen Lake, near US 183 and Lake Creek Parkway, said Bart Matheney, one of the founding principals of Aquila Commercial, which handles leasing for Aspen Lake. The office park was mostly vacant since construction was completed in 2008 because of bankruptcy until the property was purchased in 2011 and fully leased in 2012 by tenants at Aspen Lake One, including Informatica and Q2ebanking.
The new development would include two more buildings at the office park, Aspen Lake Two & Three, which will have a combined total of 257,400 square feet.
Room for growth
Although absorption rates have remained high in Northwest Austin, the area has ample room for new office space and expansion of existing companies, CBRE Vice President John Gump said. Northwest Austin has the most available office space—1.39 million square feet—in the Austin area. Gump said one reason Northwest Austin attracts many large companies is because of available housing for employees, commercial space of 50,000–100,000 square feet or more and the potential for future growth.
“The point is, for a large corporate user and the ability to grow, the opportunities are more limited downtown than they would be in Northwest [Austin],” Gump said.
Many technology companies such as PayPal, Apple Inc. and AT&T have offices in Northwest Austin, Morales said.
She said choosing Northwest Austin may be a trade-off for some companies because they want to give employees access to walkable amenities, which are easier to find in areas such as Central Austin. However, areas such as The Domain might be a good compromise, she said.
“There could be as much as a million [square] feet of office space built on The Domain,” she said. “I think the largest tenants in downtown Austin are under 100,000 square feet, and so if you’re a user looking for over 100,000 square feet in Austin, you can’t neglect a strong Northwest Austin search,” Morales said.
The office park at 7700 Parmer Lane, which Aquila leases, is one property that offers tenants a lot of space. About 390,000 square feet of office space is available for lease. Freescale Semiconductor Inc. occupies a large space at the property but will vacate it soon, Matheney said.
“The northwest and far northwest markets in general have been very popular for these companies because of the accessibility,” Matheney said.
He said Northwest Austin offers accessibility to major highways such as Toll 183A and SH 45 N, schools and housing.
“It’s a great location for people who are tapping into large employment bases,” Mathney said.