Given those vacancies, shifting workforce trends and a large amount of new space being developed in a time of lowered activity, some consideration is also being given to the potential for vacant offices to be used for other purposes, such as housing.
Current situation
More than 20% of Austin offices were vacant as of 2024’s first quarter, according to reports from several commercial real estate firms.
That level of vacancy is a modern high for Austin attributed to factors such as corporate adjustments and the arrival of new space that hasn’t yet been leased.
“We did see spikes in the vacancy rate around the global financial crisis, but this really has surpassed that in terms of the vacancy rate just given the amount of construction that’s happened,” CoStar Senior Market Analyst Israel Linares said.While vacancy is still creeping upwards, the market is seeing some signs of renewed activity. More than 1 million square feet has been leased in 2024 so far, including additions outside the urban core in Southwest Austin and to the northwest around The Domain. And net absorption—the amount of newly occupied space minus newly vacant space—is trending upwards after a negative 2023.
“What has me optimistic is just that there is activity,” said Carl Condon, an Austin-based principal with commercial real estate agency Avison Young. “There are transactions, there is evidence of positive absorption. Yes, it’s not from the bigger users that we are accustomed to seeing, but that says that there is demand for space and that people are looking to come back to the office.”
Despite some recent moves by companies such as Apple and Amazon, analysts say the bulk of leasing activity remains focused on much smaller spaces. Most current demand is in the 1,000- to 5,000-square-foot range, according to Avison Young, a trend that’s at odds with the amount of available space in new office high-rises and in the sublease market, where larger footprints are common.
Condon said he's heard of a slight uptick in new office tours and requests for space, although they haven’t yet translated into a notable wave of new transactions. And despite an ongoing “flight to quality" and higher-value Class A offices, bigger companies remain slow to occupy prominent downtown space as was more common in the late 2010s and early 2020s.
Some prominent examples include Meta, which is still seeking to sublease hundreds of thousands of square feet it’s rented at Sixth and Guadalupe, and Google, which has yet to occupy the 601 W. Second St. “sailboat” tower. Google and Meta didn’t respond to requests for comment on their plans for those spaces as of press time.
“Until we get larger users to have the confidence to come back into the market and take advantage of some of this vacancy or some of the sublease space, I think it will be hard for us to have a true market recovery,” Condon said.
Looking ahead, 4 million more square feet of office space is coming over the next few years, including the “supertall” Waterline and The Republic—which recently reached nearly 50% prelease due to tenants such as global law firms O’Melveny & Myers and Kirkland & Ellis, and Vista Equity Partners' 200,000-square-foot lease.
There have been some corporate moves that show sustained interest in the market with tech companies such as Tokyo Electron and Cisco Systems recently cementing their presence in Austin’s core. Erin Morales, Avison Young’s managing director in Austin, said that could be a leading sign of activity picking up in a market she said is well-positioned for recovery.
After this wave of new development is complete, analysts said those significant additions likely mean no major projects will be added to Austin’s pipeline for a while. Linares said the new arrivals already in progress are poised to increase the local office inventory by a higher share than any of the country's 50 largest markets will see in the next few years.
“That’s a substantial increase in new office supply that doesn’t really factor into what we’ve seen in terms of demand,” he said.
A closer look
Amid rising vacancies, city leaders asked to take a closer look at a concept that's been generating some attention in the real estate industry over recent years: adaptive reuse, or the conversion of unused offices into residential or other uses.
Although a special city audit report released this spring found the conversion process may not be the best fit across Austin, there's some interest in seeing what might work out.
Council member Mackenzie Kelly, a sponsor of the audit report, said she sought more information on "unique ways" to grow Austin's housing stock after hearing about reuse in other cities during a trip to Washington, D.C., and given a White House plan to support commercial conversions nationally.
Analysts and auditors agreed that while the concept may be appealing on paper, turning Austin's empty offices into housing presents many difficulties.
Austin's report laid out several barriers for office reuse in town, such the high costs of renovating aging buildings versus starting a project from scratch, and the difficulties tied to the civic rezoning and permitting processes. With that in mind, auditors said any such projects would likely skew toward the luxury market rather than affordable or market-rate housing.
They also said the conversion process is likely a better fit for denser urban areas than Austin.
While office reuse has created tens of thousands of new housing units across the U.S. since the mid-2010s, there are no contemporary examples in the city. Staff identified downtown's historic Brown Building as the only modern office-to-residential conversion project in Austin, although it was completed back in 2004.
"It’s a lot easier to scrape an old industrial building and put up five to 30 stories of residential than it is to convert an office building that was done in the '60s or '70s here that is past its prime," he said. "It’s just a different market, different size and velocity, lack of land. It’s just different. ... Using the Domain/Burnet Gateway as an example, there’s 2,300 acres, you can go five to 30 stories all day long."
Even if it may not bring major new housing additions, Morales said there could be some room for the process to take off in Austin. She pointed to updates like the Magellan International School's move into a former Northwest Austin office campus and The University of Austin's lease at the Scarbrough Building downtown as examples of educational facilities taking advantage of offices, given their "much more compatible" infrastructure and zoning needs as compared to residential.
Given the prominence of office space in Central Austin, the conversion concept is also of interest to groups such as the Downtown Austin Alliance. However, President and CEO Dewitt Peart said he believes the strategy wouldn't make economic sense for new residences unless downtown occupancy levels were to "plummet" closer to a 50% rate, as opposed to the approximately 80% levels today—although other uses could benefit.
“Where we do see opportunity is with short- to medium-term conversions that cater to other creative uses, thereby repurposing currently vacant spaces as the market undergoes recovery and stabilization," Peart said in a statement. "The Downtown Alliance will continue to advocate for an exploration of alternative uses that align with the evolving nature of downtown being a vibrant activity hub beyond its traditional role as economic and business center.”
At City Hall, Kelly said she'll continue to explore policy approaches to conversions, including consideration of whether any city-owned offices are ripe for reuse.
“I’m just looking at any and all ways that we can increase housing supply," she said.
