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A Year-End Spike Shines Hope For 2025 Rebound Momentum

A Year-End Spike Shines Hope For 2025 Rebound Momentum

Opening Bell: Saving the best for last, Austin saw the nation’s largest building sale in December as Cousins bought Sail Tower from Trammell Crow for a whopping $521.8 Million ($649/SF).

The Fed’s decision to cut interest rates in the latter half of the year nudged some players off the sidelines, but there’s still uncertainty about where the office goes. Let’s dive into it.

Market Snapshot: Austin saw an uptick in sales volume (easy when you have a half-billion trade happen), with over $755.3 million in trades between November and December. At an average of $154/SF across all submarkets, the market is continuing to reset itself, and many believe this is the bottom of this cycle.

Dive Deeper: As buildings trade hands, new and old owners face the same question: “How do we fill this space?” Vacancy in Austin ended the year at 18.9%, a 0.3% decrease from Q3 but still significantly higher than pre-pandemic days. Net absorption was positive for a second consecutive quarter at 448,864 SF, indicating that vacancy rates should return to earth with them as the construction pipeline clears.

Zooming out at scale, according to ConnectCRE, commercial outstanding debt increased by 1% in Q3 of 2024.

Remembering the adage, “The only way to lose the game is to stop playing,” Landlords and investors might have to stop playing here soon. Some feel the squeeze of rising debt coupled with vacancy rates; those that can weather the storm longer stand the most to gain, while others may be forced to cut their losses now.

Pro Insight: Good things take time. Spaces are taking longer to lease and sell, a continued trend since the pandemic, as decision-makers are cautious about pulling the trigger on deals. The Fed’s decisions about interest rates as we get into 2025 will significantly impact as more debt becomes due.

New owners might be getting properties at a significant discount. Still, many will have to pour sizeable improvements into the properties to make them attractive landing spots for new leasing activity.

Final Buzzer: While Austin remains a more optimistic market than nationally, waiting and seeing isn’t an option for many players now. Expect more trade volume and lower rates as this tenant-friendly market extends into the new year.

Ownership groups willing to adapt to this new landscape will be the ones that emerge victorious in the long run, even if that means investing a bit more in their properties.

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