Avison Young’s Mark Harris: Central Texas This Year and Next

Central Texas has gone through an interesting time in 2017, from continuing growth (and highway congestion) to hurricane warnings. Connect Media put questions to Mark Harris, senior associate with Avison Young’s Austin office, about commercial real estate trends during 2017, and what the next year will bring.

Q. What are some of the trends that impacted Central Texas commercial real estate in 2017?
A. Tightening of commercial lending markets has created an office development environment that requires pre-leasing of up to 40% to start construction on new buildings. These trends have slowed the amount of new office product coming on line, which has already been trailing the demand. This continues to push up rental rates into record territory. Especially in high demand areas, such as The Domain, South Mopac, the CBD and the East Side.

There’s concern that multifamily is starting to be overbuilt due to flattening rents, but developers with projects in attractive areas that are mixed-use in nature and have walkability are still bullish on apartments. Industrial continues to be the product class with the least amount of vacancy, which is driving price per square foot to record highs. Finally, retail continues to shift towards “experiences” vs. “things.” Retail experiences includes restaurants, cycling, gyms, coffee shops, speakeasies, bars, social clubs and so on. Soft goods are continuing to make the shift towards online shopping. This trend has directly and indirectly fueled some of the increased demand for warehouse space.

Q. The Austin metro is known for high tech, while the San Antonio economy seems more driven by biotech and the life sciences. Will that continue?
A. I believe we’ll see San Antonio and Austin’s industries feed off each other’s strengths, as well as supplement each other’s weaknesses. Due to proximity of the two cities, it is easy to recruit from each and/or have offices in both locations to target different employee types, skills and salary levels. San Antonio has a growing high-tech sector that has been influenced by Austin, and Austin has a growing med-tech/life sciences industry with the new Dell Medical School and recent announcement of Merck opening a center of excellence in downtown Austin. These factors will play into the eventual creation of an Austin/San Antonio metroplex, allowing each city to continue to cross-pollinate.

Q. What impact will housing and infrastructure have on Central Texas in 2018?
A. Housing and infrastructure will eventually impact people’s decisions to move here, but that isn’t happening in 2018. Developers and the city (Austin) are hyper-focused on creating mixed-use developments or developing projects in highly walkable areas that mimic a mixed-use development. The increased density of these projects allows the addition of more housing in a smaller area, with the hope that traffic will not be affected due to the walkability of the surrounding amenities.

It’s hard to give a 2018 forecast without discussing the GIANT elephant in the room, Amazon’s HQ2. If we miss out on HQ2, we will continue to see strong growth across all sectors, unless a major world event takes place. Being that I’m an advocate for, and believer in, Austin’s chances for HQ2, I think 2018 is going to be a benchmark year in terms of growth and excitement, as we land the largest HQ project in recent history.

For comments, questions or concerns, please contact Texas Commercial Real Estate News Editor Amy Sorter