Austin Office MarketView

CBRE Global Research and Consulting Q2 2013

In Q2 2013, citywide vacancy dropped 40 basis points (bps) quarter-over-quarter (QoQ), to 13.2%. This marks the ninth quarter of falling vacancy out of the last ten quarters. Year-over-year (YoY), vacancy fell 240 bps, from 15.6%, and many believe this precipitous pace will continue until new product comes online.

Citywide absorption for the quarter came out to 265,156 square feet, which brought the year-to-date (YTD) total to 463,535 square feet This is slightly behind the 530,346 square feet absorbed by Q2 2012, but, with over 2 million square feet of demand in the market, absorption should continue at a healthy pace through year-end.

Nearly half of the citywide absorption took place in the Northwest Submarket, where Q2eBanking moved into 85,000 square feet at Aspen Lake, Big Commerce moved into 33,000 square feet at Four Points, and HomeAway moved into 30,000 square feet at Research Park Plaza.

The overall CBD absorption was buoyed by Class B product, primarily the 24,000 square

Total Vacancy and Direct Asking Rate

feet Zilliant took at Perry Brooks, while Class A product experienced negative absorption, due in large part to CSC moving out to the suburbs.

Asking rates continued upward, marking seven consecutive quarters of increased rates. The citywide average is $28.12 on a full-service gross (FSG) per square feet basis. Not only does this mark a $0.92 increase, QoQ, it marks the highest citywide average in the history of the Austin Office Market.

Aside from the historic-high asking rates, the other major story coming out of the second quarter is the new construction that has finally returned to Austin. At the close of Q2, there was over 830,000 square feet under construction. The last time there was this much in the pipeline was Q3 2008, when 1.7 million square feet was underway. The bulk of this new construction is in the CBD, with projects like Colorado Tower, the IBC Bank Building, the Seaholm Powerplant Redevelopment, and the Offices at Bowie.

Quick Stats

Q2 2013 QoQ YoY

Vacancy 13.2%

Asking Rates $28.12

Net Absorption 265,156 Sq. Ft.

Under Construction 838,965 Sq. Ft.

Delivered Construction 58,000 Sq. Ft.

Hot TopicsCitywide average asking rates jumped $0.96, quarter-over-quarter, to $28.12. Nearly 800,000 square feet of new construction broke ground in Q2.

• Austin passed Indianapolis and Jacksonville to

become the eleventh largest city in the U.S.,

according to Census Bureau data released in

May 2013.

• Austin ranked as Thumbtack.com’s “Friendliest

City for Small Business” in April 2013.

• On May’s Economic Vitality Index ON

NUMBERS, Austin topped the list.

• Austin is the number one Boomtown in

America, according to Bloomberg’s April

ranking.

• In April, Nerdwallet Inc. ranked Austin as the

third best city in the U.S. to start a business.

• Austin ranks as the third best city for recent

college grads, according to The Atlantic in May

2013.

• Dice.com ranked Austin as the third best city

for tech job growth in March 2013.

• Austin is also a Top 10 City to Witness Tech

Innovation per USA Today in April 2013.

ASKING RATE$28.12 Per Sq. Ft.

ABSORPTION265,156 Sq. Ft.

CITYWIDE AVERAGE ASKING RATE REACHES ALL-TIME HIGH.

UNEMPLOYMENT5.4%

VACANCY13.2%

$24.00

$24.50

$25.00

$25.50

$26.00

$26.50

$27.00

$27.50

$28.00

$28.50

12%

14%

16%

18%

20%

22%

24%

26%

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Average Lease Rate Per Sq. Ft.Total Vacancy

Source: CBRE Research, Q2 2013.

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2 (1,000,000)

(800,000)

(600,000)

(400,000)

(200,000)

0

200,000

400,000

600,000

800,000

1,000,000

Q1

2007

Q2

2007

Q3

2007

Q4

2007

Q1

2008

Q2

2008

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Class A Class B Overall Net Absorption

SF

Market Statistics

MARKET DEMANDOverall, citywide absorption was healthy across all submarkets in Q2, though Class B space was clearly the most coveted. The Northwest Submarket record-ed its tenth consecutive quarter of positive absorp-tion, seven of which registered over 100,000 square feet Over 65,000 square feet was absorbed in CBD Class B space, bringing vacancy in that subset to a very tight 6.1%. The North Central Submarket had a strong showing for the first time in two years, absorbing over 57,000 square feet in Q2, bringing vacancy down 200 bps to 25.6%.

Major deals of Q2 2013:• Q2eBanking commenced on 85,000 square feet

at Aspen Lake.

• Hewlett Packard commenced on 43,000 square feet at Travesia.

• Big Commerce commenced on 33,000 square feet at Four Points Centre.

• Amherst commenced on 20,000 square feet at Plaza on the Lake.

• Freescale vacated 125,000 square feet at 7700 Parmer.

Market Rentable

AreaVacant Sq. Ft.

Vacancy Rate

Net Absorption

Sq. Ft.

Delivered Construction

Sq. Ft.

Under Construction

Sq. Ft.

Average Direct Asking Lease Rates $/Sq. Ft./YR

Class A Class B

CBD 9,045,086 1,030,690 11.4% 48,812 0 744,632 $41.76 $30.58

Northwest 16,298,141 2,204,881 13.5% 117,780 0 0 $28.38 $24.13

North Central 2,905,950 744,724 25.6% 57,608 0 0 $30.70 $20.61

Round Rock 620,894 127,993 20.6% (3,767) 0 0 N/A $22.67

East 1,855,273 304,829 16.4% (11,509) 0 30,248 N/A $17.24

South 1,746,355 380,808 21.8% (1,009) 0 0 $26.00 $14.69

Southwest 9,568,412 742,662 7.8% 57,241 58,000 64,085 $31.75 $26.32

Totals 42,040,111 5,536,587 13.2% 265,156 58,000 838,965 $32.71 $21.65

ABSORPTION AND VACANCY RATE

ABSORPTION BY CLASS

OFFICE SECOND QUARTERMARKETVIEW

Source: CBRE Research, Q2 2013.

Source: CBRE Research, Q2 2013.

12%

14%

16%

18%

20%

22%

24%

26%

28%

(1,000,000)

(600,000)

(200,000)

200,000

600,000

1,000,000

1,400,000

1,800,000

2,200,000

2006 2007 2008 2009 2010 2011 2012 2013

Net

Abs

orpt

ion

Sq. F

t.

Q1 Q2Q3 Q4Total Annual Net Absorption Vacancy Rate

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OFFICE SECOND QUARTERMARKET STATISTICS

OFFICE RENTSAfter climbing $0.96 in Q1, citywide average asking rates jumped another $0.92 in Q2 to $28.12. If rates continue at this pace, the citywide average will be $30.00 by the end of 2013.

Every submarket raised rates, though the most notable spikes were in the CBD, North Central, and Southwest Submarkets, where average rates rose by more than $1.40 per square foot Contributing to the rising rents were complexes like Chase Park, where rents were up $2.50, and Amber Oaks, where rents went up $1.50 QoQ.

OFFICE PRODUCTIn Q2, developers finally got the “green light” for several highly-anticipated office projects, such as Colorado Tower, the IBC Bank Building, and the Seaholm Powerplant Redevelopment. These projects alone will add over 700,000 square feet of new inventory downtown, which is equivalent to an eighth of the existing inventory. Additionally, there are two buildings going up in the Southwest Submarket for roughly 64,000 square feet and a creative office building going up in east Austin.

For the first time in two years, new product was delivered when Building Q of the Hill Country Galleria was completed in June. Even with the recent and upcoming additions, tenants are expressing concern over the ability to expand in a tightening market. Many are beginning to assess the risk of taking more space than needed and subleasing short-term to protect growth space.

UNEMPLOYMENT Employment in the Austin-Round Rock-San Marcos MSA continues to outperform both state and national figures by a strong margin. The Austin area unemployment fell to 5.1% in April, down from 5.4% in February.

Austin, and most of Texas, has garnered major attention from local and national media outlets for the ability to maintain low unemployment numbers in the midst of a surging population boom. According to the U.S. Census Bureau, Austin recently became the eleventh largest city in America, after adding over 25,000 new residents between 2011 and 2012. The Business Journals’ On Numbers reported weekly earnings for private-sector workers grew 7.6% during the same time period, marking the ninth-largest increase among the largest U.S. markets.

Home sales were up 32% in April, YoY, according the Austin Board of Realtors, with homes selling in a brisk six weeks on average.

Gross Annual Average Asking Rates, Per Sq. Ft.

Unemployment

Source: CBRE Research, Q2 2013.

Source: CBRE Research, Q2 2013.

Source: U.S. Bureau of Labor Statistics, Q2 2013.

$18

$20

$22

$24

$26

$28

$30

$32

$34

2007 2008 2009 2010 2011 2012 Q2 2013

Class A Class B Market Average

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Under Construction Deliveries

2%

3%

4%

5%

6%

7%

8%

9%

10%

2007 2008 2009 2010 2011 2012 2013

US Texas Austin - Round Rock - San Marcos MSA

Construction, Sq. Ft.

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GLOBAL RESEARCH AND CONSULTING This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.

DISCLAIMER

Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we

have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and

completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be

reproduced without prior written permission of the CBRE Global Chief Economist.

For more information about this Austin Office MarketView, please contact:

TEXAS RESEARCH

Lynn CirilloResearch Operations Manager, TXCBRE Americas Research2800 Post Oak, Suite 2300Houston, TX 77056e: lynn.cirillo@cbre.com

Trey Low Research CoordinatorCBRE Austin Research100 Congress Avenue, Suite 500 Austin, TX 78701t: +1 512 499 4939 e: trey.low@cbre.com

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