Three years ago, a global investment firm sent waves through Austin's real estate market by inking a blockbuster pre-lease deal that let one of the Texas state capital's largest office towers break ground, a risky endeavor at the time.
Now, Vista Equity Partners wants to get rid of nearly half of its future space in the 48-story Republic tower. It's a move that comes as corporate giants across the nation continue to reevaluate their real estate and shed office space, keeping the amount of sublease space at near-record highs.
The company is looking to land a deal for roughly 79,500 square feet at the project just a few months ahead of the high-rise's completion, according to marketing materials viewed by CoStar News. The firm has hired JLL to help land a subtenant for the space that represents about 40% of the 200,750 square feet Vista signed on to fill prior to the project's groundbreaking in 2022.
That deal was among the largest for the Austin market since the onset of the pandemic, and provided developers Lincoln Property Co., Phoenix Property Co. and DivcoWest the confidence they needed to break ground on the nearly 820,000-square-foot project slated to be one of Austin's tallest office buildings upon completion this year.
Vista is expected to remain one of the tower's largest tenants even after it finds one or more takers to fill the space it is trying to sublease. Still, the giveback contributes to about 4.7 million square feet of sublet space in Austin, a record-high level that has been tough to backfill as demand for office space remains tepid and newly completed projects gives prospective tenants plenty of options from which to choose.
While that flight to quality shift has boosted office leasing across the U.S. in recent months, the nation's vacancy rate is still climbing to record highs, up to 13.9% from 13.7% a year ago, and from the roughly 12% vacancy rate in 2022, when Vista first signed its lease.
That figure is slated to climb even further over the next year, CoStar data suggests, as the lingering impacts of the pandemic, coupled with mounting economic uncertainty, clouds the trajectory of the office market's broader recovery.
Ongoing adjustments
Whether it's an adjustment to permanent hybrid work policies or a need to curb expenses, companies continue to turn to their real estate holdings as one of the first places to make cuts.
Finding a taker for Vista's space could prove to be a challenging feat given Austin's rising amount of availability over the past half decade. A plethora of new developments have made the city the second-fastest-growing office market in the country, according to CoStar analysis, driving the regional vacancy rate past 17% to one of the highest levels in the United States.
Vista, currently based in the Frost Bank Tower several blocks away, did not respond to CoStar News' requests for comment. The firm is also trying to sublease the entirety of its roughly 73,400-square-foot Congress Avenue space ahead of its move to the Republic.
The tech investment firm's commitment to anchor The Republic gave developers Lincoln Property Co., Phoenix Property Co. and DivcoWest the confidence they needed to break ground on the nearly 820,000-square-foot project slated to be one of Austin's tallest office buildings upon completion this year.
As work has been underway, the upcoming addition to Austin's skyline has landed a procession of deals among tenants looking to upgrade their office real estate.
Over the past year alone, international law firm Pillsbury Winthrop Shaw Pittman signed a deal to take over a full floor at the project, helping to boost the Republic's prelease rate past the halfway point. Fellow law firm Kirkland & Ellis filed plans a few months beforehand to begin work on a $30 million finish-out for part of its future 136,064-square-foot space at the tower. Los Angeles-based firm O’Melveny & Myers also signed a 28,000-square-foot deal earlier in 2024.
The flurry of leases signed at the Republic is in line with the "flight to quality" shift tenants across the country have been making as they look to upgrade their office space to appeal to a modern workforce.
Properties touting flashy designs with resort-quality amenities have attracted the bulk of the national leasing activity in recent years as their aging, lower-quality alternatives have largely suffered steep occupancy losses and mounting financial distress.
What's more, the companies that are signing deals and focusing on the best space available have proved willing to pay for it. Asking rents for premier office space is more than 50% higher than the rest of the market, up from the 40% premium landlords were able to command three years ago.