You Can't Fight The Market

We’re quickly approaching the wind down of 2025 and while the year has been a turbulent ride in Austin, much like the rest of the domestic CRE market, we’re seeing some themes emerge that bode for a promising recovery in 2026.

Three Things to Watch:

• The Development Pipeline is finally clearing out. With Republic’s Q3 delivery, we’re left with only The Waterline. That means the market won’t be getting these large injections each quarter of largely vacant Class A trophy buildings and we should start to see a vacancy rate reflective of what’s actually going on in the market. In theory, it should give us a much needed reprieve to work through leasing of existing spaces. I think this bodes well for Class B/B+ buildings in prime submarkets, that’s because they can capitalize on the other two emerging trends most.

• A Continued Decline in Transaction Size. When you remove the 100,000+ SF deals, which have also decreased in the recent years, you’ll see our average transaction size is skewing smaller and smaller each quarter. With continued macro economic uncertainty, I anticipate this trend to stabilize around 2,500-4000 sf as tenants look to limit their obligation.

  • You’re seeing ownerships across the ECR portfolio spec out class B spaces between 1,500 and 6,000 SF to compete.

• A Rise in Efficiency. Coupled with the above, as tenants look to reduce overhead, spaces that maximize efficiency continue to distance themselves and those that lack efficiency have to get creative on phase in pay structures/other concessions to close the gap.

  • I’ve got a group looking for ~2,000 sf currently and realistically we can find them a 1,500 sf space with the right layout. That ~500 sf reduction is saving them nearly $2,000 a month, or $72,000 over a 3 year lease. Those kinds of savings can make all the difference in these economic conditions.

Case Study + Lesson Learned 📚:

I was recently helping a group relocate within the NW Austin submarket. When we first got connected they shared with me their dream list: Class A building, first rate fitness center, on-site showers, easy accessibility, and updated finishes within the suite itself.

Sounded like my ideal office.

Full transparency, this was one of the first groups I got to work with from the very beginning stages and I heard all of the above as music to my ears. They were eager and motivated to get something done ASAP.

So I set out running survey’s, relaying options and confirming availability on what made the cut. We got our tour list together and everything was running smoothly until we got to the first tour.

In my eagerness to meet their express timeline, I overlooked two of the most important questions to ask: term and budget.

Turns out they were wanting a one year term on a significantly lower budget than mostly everything in our first tour set. Everything we had just seen was immediately disqualified.

I took that feedback back to my desk and ran another survey, this time verifying buildings would do a one year deal and something much more budget friendly. What I would find is they really had a Class B budget with Class A aspirations. Something was going to have to give if we wanted to get something done.

Eventually, we narrowed in on our top choice and started trading proposals where getting to an agreeable rate seemed to be an impossible task. Ownership came in at their advertised rate (a rarity on a one-year deal) and my group wanted to push back $5/sf less or $1,500/mt less. We were worlds apart and unfortunately the deal died before we could get any closer.

I learned, if you want to pay $2/gal for your gas but the gas station sells it for $3, you’ll have to go somewhere else or pay the rate, aka there’s no haggling what the market has set.

Now, we’ve presented everything in their target submarket that fits their criteria and budget. Each space has some pros and cons, but that’s where the current market is for a tenant that takes up 1% of an office building on a one year term. Unfortunately, I don’t have a magic wand that will make ideal space appear in the next month so we’re having to get more flexible on our terms. No deal has been struck yet, but I’m hopeful we can find a workable solution that improves from their current office situation.

The Final Whistle ⏰:

At the end of the day, you can’t fight the market. You can negotiate a lot of things but most of the variables at play in any given CRE transaction are outside of our control and it’s on us to recognize that.

Learning to take the wins where I can and let go + learn the lessons where things don’t always end in the outcome you’d like.

Thanks for joining me, I’ll see you next month!

Cory