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With Google, Facebook and 6 Million SF Under Construction, Downtown Austin is Hot: Q&A with Mike Kennedy of Avison Young

Mike Kennedy of Avison Young in Austin.

Mike Kennedy of Avison Young in Austin.

Austin’s commercial real estate, driven by corporate relocations and high technology expansions, the market is among the strongest in the Lone Star State. The city’s economy remains robust, with18,800 new jobs over the past twelve months ending December, 2016. Those numbers are reflected in the increased real estate activity. New downtown office tenants include Google and Facebook. One of the largest developments under construction is the 560,000 square foot campus with 250 apartment units near Lady Bird Lake for software giant Oracle Corp. To learn more about the commercial market in Texas’ capital, Realty News Report spoke with Michael Kennedy, principal and managing director in the Austin office of Avison Young, one of the world’s fastest-growing commercial real estate services firms with offices in the major cities of Texas. Throughout his career, Mr. Kennedy has been recognized as one of the most active office leasing and sales brokers in the Austin area.  Recently, he and his team represented Scott Douglass & McConnico, kicking off construction of the first Austin CBD towers in 10 years – the 30-story Colorado Tower. Avison Young currently represents a number of technology and law firms in space searches in Austin’s CBD.  A graduate of the University of St. Thomas and the South Texas College of Law in Houston, Mr. Kennedy is an active member of the SIOR – Society of Industrial and Office Realtors.

Realty News Report: Downtown Austin has a number of construction cranes on the horizon. Has construction ever been like this before?

Michael Kennedy: Not to this extent nor to this scale for number of property types.  Currently over six million square feet of residential, hospitality and office space is under construction in the downtown Austin area. Ultimately Austin’s CBD could contain another 30 million square feet of built space.  And the traditional footprint of core Austin CBD will likely expand as this growth continues.

Realty News Report: We understand many of these tenants will be tech firms, such as Google and Facebook. Tell us about the tech tenants coming to downtown Austin.

Michael Kennedy: Our Avison Young study shows that if you are an employer interested in hiring the early 20’s to early 30’s demographic you want a presence in or close to downtown. Google, Facebook, RetailMeNot, WP Engine, OutBound Engine and co-working companies such as WeWork, Galvanize, TechSpace and Industrious have added space as the demand from this demographic for urban working and living has grown. Other industries and business sectors including traditional CBD employers such as law firms are also finding that downtown is an asset to their recruiting and future growth.

Realty News Report: Why are tech firms coming downtown instead of the suburbs?

Michael Kennedy: Tech companies are coming due to the attractiveness of Austin’s downtown as a place to work, live and play. Austin is unique compared with major Texas cities to have a downtown that is dense, walkable and with a sense of place as an 18-hour city. And a downtown resident does not need a car. Two grocery stores (Whole Foods and Trader Joe’s) as well as neighborhood Royal Blue stores and others support retail needs so there is no need to venture outside downtown.

Realty News Report: We’ve heard office rents have gone up sharply in the Austin CBD. Why is that?

Michael Kennedy: Simply put, rents are rising due to rising demand and constrained supply. For many years, any additional office supply added to Austin’s CBD meant a drop in rents since demand was from largely traditional downtown tenants such as law firms, financial companies and service firms. These companies are traditionally slow growth.  With the advent of the re-urbanization of cities due to their attractiveness to millennials, rapidly-growing tech employers in competition for talent have to be in the location their potential employers want to be and that is downtown. Absorbing office space rapidly has seen developers opening buildings fully preleased and at rates higher than pro-forma, which is unheard of in past cycles. And this demand continues. Vacancy is at 5 percent currently and limited supply is being delivered. The result? Rates continue to rise.

Realty News Report:  The Austin American-Statesman newspaper operates on a big 19-acre waterfront tract at Lady Bird Lake at Congress Ave. What’s going to unfold there?

Michael Kennedy: Both the Planning Commission and the Austin City Council have approved The South Central Waterfront plan unanimously. The plan calls for the city to provide significant infrastructure for this 100+ acre area to create incentives to re-developers for significant density and height entitlements while providing lake access and amenities which will enhance the street level experience for neighbors and Austin residents and add to the tax base with income well beyond current entitlement revenues for workforce and affordable housing, schools and parks.

Realty News Report: Do you have any concerns about the possibility of overbuilding?

Michael Kennedy: Not at this time. All property types seem to be balanced with supply matching or trailing demand.

Realty News Report: Anything else you’d like to add?

Michael Kennedy:  Austin is expected to add two million more people in its MSA by 2040 and one million in the next 14 years.  Some 30% of the city of Austin’s population of approximately 1 million live within a 10 minute drive of downtown Austin. The attractiveness and convenience of Austin’s downtown is not likely to abate. Austin deserves its reputation as one of the most livable and likable cities in the nation.

April 4, 2017 Realty News Report Copyright 2017

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