Amid ongoing tech layoffs nationwide and shaky economic conditions, one of the country’s hottest tech hubs is now faced with a flood of empty office space. In Austin, Texas, vacant sublease space took a major leap over the last quarter, rising 28 percent from the second quarter to the third of this year, reaching nearly 2.5 million square feet, according to data from Colliers. At the same time, the city, which has been a magnet for corporate relocations and tech companies in recent years, has millions of square feet of new office space in the pipeline. However, some projects have been paused in the face of a potential recession next year. Overall activity in the Austin office market has slowed “tremendously,” with many companies sitting on the sidelines due to rising interest rates. “The few transactions that have occurred have been slow and difficult and, much like with leasing activity, most sellers are in a holding pattern until Q1 2023,” said Colliers’ Clarisse Rodriguez.
Austin isn’t alone: ‚Äč‚ÄčOther tech-heavy cities around the country are seeing available sublease space soar as well. In Seattle, sublease vacancy rose 9.2 percent quarter-over-quarter, while in Raleigh-Durham, another mid-size tech hub, a record amount of sublease space is on the market. The total amount of available sublease space reached 3.2 million in the third quarter of this year, a dramatic increase of 65 percent from a year ago and an increase of nearly 14 percent from the previous quarter.
Office fundamentals have struggled nationwide over the last three years after the sector was rocked by the pandemic and remote and hybrid work models became a permanent part of the workplace. More large office occupiers have downsized or backed out of office leases in recent weeks, as companies brace for a looming recession and figure out their hybrid plans. Meanwhile, as the real estate industry braces for an expected downturn next year, a number of large commercial real estate brokerages are implementing cost-cutting measures, including layoffs. These latest numbers on sublease space nationwide and Austin in particular add up to more bad news for the office market, which could also see less demand with unemployment expected to rise in 2023, according to the Fed.