Jan 22, 2024 - News

Charted: Austin office vacancies persist

Metro area office vacancy rate, Q4 2023
Data: Moody's Analytics; Chart: Axios Visuals

Austin office vacancies rank among the highest in the nation, as companies continue to adapt to the new norms of remote and hybrid work by shrinking their physical footprints.

The big picture: Vacancies nationally hit a record high in the fourth quarter of last year, surpassing previous peaks last reached in 1991 and 1986, according to new data from economic research firm Moody's Analytics.

Why it matters: The transition marks an enormous societal shift as Americans adjust to a whole new way of working and living — big changes are underfoot in cities and suburbs across the country.

  • Yet it's happening so slowly and in such a predictable fashion that the impact on the overall economy so far has been minimal.

State of play: The stickiness of hybrid work arrangements "muted office demand," per the report, which says 2023 was "the most downbeat" year in the office sector since the global financial crisis.

Zoom out: Unlike past crises, vacancies increased last year while the economy was in good shape overall.

  • "If the soft landing is pulled off, [vacancy] numbers are probably not going to rise to much higher than this," Nick Luettke, an associate economist at Moody's Analytics CRE, said.

Between the lines: This is not just a pandemic trend. The office market's current troubles go back to the 1980s.

  • Back then a construction boom, particularly in the South, led to overbuilding.
  • Five of the 10 cities with the highest vacancy rates in 2023 were in the South — Houston, Dallas, Austin, Tampa and Jacksonville, per Moody's.

What's next: We're moving toward a new era for the office. Expect more mixed-use setups — areas with office buildings and retail and entertainment, etc.

  • A similar transition happened in the retail sector — online was supposed to kill brick-and-mortar retail, but instead it transformed in-person shopping. "Office spaces might be the same," Luettke said.
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