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Office Construction Continues to Extend Outwards in the Four Major Texas Metros

CoStar Market Insights: Suburban Office Supply Dominates Texas
August 7, 2018

Aerial of the ExxonMobil Campus in Spring, TX.

Contrary to other large metro areas throughout the country, office construction in the four major Texas metros has been overwhelmingly concentrated in suburban areas this cycle. Dallas-Fort Worth has added a whopping 90 percent of its office supply since 2010 to suburban locales, and Houston is not far behind, with about 85 percent of office rentable building area (RBA) delivering in the suburbs this cycle. San Antonio has a similar ratio to D-FW, while Austin bucks the trend slightly with about 70 percent of construction in the suburbs.

In comparison, among the top 10 metro areas by RBA, only two-thirds of new stock was added to the suburbs. However, excluding D-FW and Houston lowers the suburban construction ratio to 55 percent among top 10 metros.

Single-tenant users like Toyota/Liberty Mutual (D-FW) and ExxonMobil (Houston) have driven much of the suburban office growth in Texas, but the picture remains the same even if you only take into account multi-tenant space. Of the multi-tenant office space added since 2010 in Houston and D-FW, more than 80 percent was in the suburbs, with San Antonio (90 percent) and Austin (65 percent) again coming in on opposite sides of the spectrum.

Firms looking to relocate or expand to Texas’ suburbs are able to tap into a robust and growing labor force. The four major Texas metros have ranked among the top metros for net migration on both a percentage and nominal basis. Furthermore, towns like Round Rock (Austin), Frisco (Dallas-Fort Worth) and The Woodlands (Houston) boast some of the highest concentrations of bachelor’s degree holders in their respective metros.

Residents are drawn to the suburbs for the same age-old reasons as in past decades: good schools, affordable housing and access to retail amenities. Adding in better access to employment nodes only increases the value proposition. Furthermore, many Texas suburbs are routinely ranked as some of the best places to live by various publications.

Texas suburbs are also relatively affordable compared to similar areas in core metros.

Apartment rents of around $1,300 per month in submarkets like Plano, Katy, Cinco Ranch and Cedar Park are affordable for most dual-income earners, and home prices below $400,000 are a bargain compared to those in top-tier suburbs in the Northeast or on the West Coast.

The biggest downside to the increase in growth and density in Texas’ suburbs is its strain on infrastructure, which is especially acute due to the lack of large-scale mass transit in most municipalities.

The good news is that Texas metros have their own built-in release valve: the next town over. Highway projects, such as Houston’s Grand Parkway, Dallas’ Tollway extension and Highway 380 expansion, make it feasible to keep growing outward, relieving housing and infrastructure pressures at least temporarily.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

Learn how CoStar Market Analytics can add to your market knowledge, helping to minimize risk and maximize returns.

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