Austin, once a national leader in returning to the office, is quickly becoming a laggard.
The Texas capital, where technology giants Google, IBM Corp., and Apple Inc. have ambitious expansion plans, has seen its office occupancy rate fall from 68% in early March to 57% last week — the biggest drop by far among the 10 major US cities tracked by security firm Kastle Systems.
The decline comes as Austin’s office-vacancy rate rose to 25% in the second quarter, according to Cushman & Wakefield, while space available for sublease has risen faster than any other metro area over the past year, CoStar Group Inc. found. Record heat, summer school holidays, and resilient remote work habits have contributed to keeping workers at home, experts said.
“The combination of increased layoffs, a fragile economy, and a more flexible hybrid work policy has resulted in a fresh wave of additional sublease space as tenants continue to gauge their current office demands,” a Cushman & Wakefield quarterly market report on Austin concluded. “Office leasing activity remained mostly stagnant.”
Going Remote
Austin's office occupancy has fallen below Houston's in recent months
Source: Kastle Systems
Note: Figures are comparisons to pre-pandemic levels, not total potential occupancy.
The falloff is notable as Austin, home of PC maker Dell Technologies Inc. and software giant Oracle Corp., boasted the highest return-to-office (RTO) rate among big US cities tracked by Kastle for much of last year, bucking the typical trend of remote-friendly work arrangements witnessed in other tech hubs like San Francisco and San Jose. And while Austin’s big employers have laid off thousands of tech workers in recent months, such moves typically boost RTO rates, as workers decide that showing their faces more often could help them avoid the next round of job cuts. Austin’s unemployment rate stood at 3.5% in May, according to government data — similar to the national rate.
Austin has fostered a thriving technology sector since the 1990s. During the pandemic a new wave of tech employers flooded in, seeking to escape the high taxes and strict regulations of California. The migration included Tesla Inc. founder Elon Musk, who’s established a new factory there. Of the 53 companies that left California in the first half of 2021, one in five chose to relocate to Austin, according to real-estate brokerage Jones Lang LaSalle. Other firms that have called Austin home for years also have pricey expansions in the works. Additionally, the low-tax region has attracted fresh investments from semiconductor firms like Samsung Electronics Co., part of President Joe Biden’s broader push into domestic chipmaking.
Empty Desks
Austin's citywide office-vacancy rate has shot up in recent months
Source: Cushman & Wakefield
There’s currently 6.2 million square feet of office space under construction citywide, according to Cushman & Wakefield, including the new Waterline high-rise downtown, whose 74 floors — featuring 700,000 square feet of office space — will make it the state’s tallest building upon completion in 2026.
Still, longtime Austin residents such as Reuben Swartz, a software developer who has worked remotely for years, said some offices are essentially “ghost towns,” and this has little to do with the recent heat wave.
“Tech has slowed hiring and even laid people off, and most of the big companies have failed to get people back in the office,” said Swartz, adding that some of his friends at big firms invite him to work in their offices just so they have someone to talk to during the day. “I would be very worried that there’s a lot more contraction to come.”