How Apple & Amazon have changed commercial real estate
Every week, Austin finds itself in the top spot on another nationwide list. Whether it’s the country’s hottest labor market, No. 1 metro area for growth over the last decade, or the best place to live for three years in a row, there’s hardly an economic top 10 list that Austin doesn’t crack.
That exponential growth means that the office commercial real estate market has also been booming. At the end of 2018, rents for office space in Austin were at a record high, and occupancy topped 90%. With companies opening offices at a dizzying pace, competition is fierce. The five biggest deals last year were office spaces for Facebook, Indeed, Parsley Energy, Amazon, and Visa. Never heard of Parsley? The fast-growing oil and gas company signed a lease for every bit of the office space in a new 31-story building downtown. And all those deals don’t even include the massive Apple campus planned for northwest Austin.
Growth is good, but it also can put medium- and large-business owners in a bind. Few can afford the $41.09 per square foot average price for Class A office space in Austin. And top-tier space was 90.6% full at the end of 2018, so there’s not a lot to go around.
Options are limited so proactivity is a must to ensure that our clients get what they’re looking for — versus being stuck with leftovers.Russell Young, Tenant Rep Lead for JLL Austin
Your office is a manifestation of your company’s culture–and success
Compounding the pressure on business owners is the fact their location and its amenities have become key recruiting and retention tools for top talent.
“Their real estate and location are directly correlated to how they are perceived by prospective and current employees,” Russell Young, Managing Director and Tenant Rep Lead for commercial real estate brokerage JLL’s Austin team, told the Austin American-Statesman. “Our unemployment rate remains at a historic low. Options are limited so proactivity is a must to ensure that our clients get what they’re looking for — versus being stuck with leftovers.”
All those factors combine to put the squeeze on companies looking for a headquarters that can meet their needs now and also grow with them.
Enter WeWork private office suites. WeWork is the largest space-as-a-service platform in the city, leasing almost 500,000 square feet of office space in Austin. Plus, the company is becoming a major player in the downtown office space scene after buying a 4.7-acre plot at Red River and East Cesar Chavez streets. And as Matt Wilhite, a tenant broker at Austin brokerage Aquila points out, “it’s not only startups and small companies claiming space at WeWork.”
This past year showed an increase in tenants’ affinity for flexible lease terms with companies of all shapes and sizes leveraging WeWork en masse.Matt Wilhite, Aquila Austin Tenant Broker
Partnering with WeWork could take 1 of 2 forms.
First, there’s the opportunity to establish an office in one of WeWork’s five locations in Austin. (A sixth one is opening soon in the new South by Southwest Center near the Texas State Capitol.) That’s the path that most companies think of as coworking– but with private, lockable office suites furnished with desks and chairs that share amenities and facilities with other medium and large businesses, as well as solopreneurs.
Second, there’s also the headquarters by WeWork option, where companies choose from WeWork-managed move-in ready office suites outside of WeWork-branded buildings. Companies can claim the address as their own while WeWork works behind the scenes to manage internet, IT support, building repairs, facilities maintenance, housekeeping, employee badging, building security and more.
That type of flexibility is becoming difficult to find with traditional leases in Austin. Aquila’s trends report found that to try to keep up with amenities being offered elsewhere, some businesses are pushing their landlords for changes to their existing office space. But some of those landlords are pushing back by enforcing restrictions to limit the load on their buildings’ infrastructure (restrooms, elevators, HVAC, etc.).
“In order to limit the number of employees in the building, many landlords in the CBD (and in some suburban properties) have tried to implement density clauses, which is proving to be problematic for many tenants,” says Aquita tenant broker Max McDonald.
Landlords are looking to keep traditional downtown tenants, like law firms and professional service firms, but are finding that often, these traditional tenants are getting priced out of downtown by the Fortune 1000 setting up shop in town.
As long as Austin’s economy keeps growing, these are the considerations medium and large businesses will have to wrangle with. Demand is expected to increase, and employees will continue to look for workspaces that offer a not just good, but great, work environment.
Get in touch to hear more about WeWork office suites available in Austin.