Report: Slower economy doesn't dim downtown Austin's dynamism

Yahoo

30-05-2025

Despite economic headwinds that have pushed office vacancies into double digits and slowed new development, downtown Austin hasn't lost its luster.
That's the picture painted by the latest 'State of Downtown' report from the Downtown Austin Alliance, released last week. While slower, growth in the city's central business district is still being fueled by new developments and population growth, even as businesses adapt to changing market conditions, alliance officials said.
Although downtown may be navigating a market correction, the area has "remained dynamic," said Whitney Knight, the alliance's board chair.
"While new construction has slowed, this pause offers a chance to focus on quality over quantity, to activate what we've already built, and to lay the groundwork for what's next," Knight said.
Still, downtown — bounded by Lady Bird Lake to the south, Interstate 35 to the east, Lamar Boulevard to the west and Martin Luther King Jr. Boulevard to the north — hasn't stopped growing.
"Although office and residential vacancies increased this year, demand is still high for working and living downtown. There is more space to fill, but downtown's workforce and population are growing, and lower rates enable more people to find a place here. The hotel and retail markets enjoyed steady performance this year, although these are both navigating emerging economic challenges," the report said. "People are attracted to its diverse mix of events, arts and entertainment, recreation and industries and opportunities.'
David Barbour, president and CEO of the Downtown Austin Alliance, who has lived and worked in downtown locations across the country, said the group will "double down on what makes downtown Austin great — its vibe, vitality and collaborative spirit," while continuing to "address issues that challenge its full potential: affordability, homelessness, safety and access."
The Downtown Austin Alliance works with downtown property owners, residents, businesses, community organizations and government leaders to enhance the appeal of the central business district, which Mayor Kirk Watson called the city's "living room" more than two decades ago during his previous tenure as mayor.
On Tuesday, Barbour was the keynote speaker at the alliance's "Future of Downtown" event held at the ACL Live at The Moody Theater downtown.
'Downtown is the cultural and economic heartbeat of our city,' Barbour said in a statement issued after the event. "This is a place where creativity thrives, businesses grow, and everyone is welcome. As we navigate major infrastructure projects, new development and population growth, our focus is on keeping downtown accessible, vibrant and open to all."
The alliance has produced its "State of Downtown" report since 2019, tracking key data points on trends and economic indicators in sectors including downtown's office, hotel, residential and retail markets.
Below are highlights, along with excerpts from the report elaborating on its findings.
The office market vacancy rate downtown is nearly 22%, reflecting the continued work-from-home or hybrid work models post-COVID. In 2019, pre-pandemic, downtown's office vacancy rate was 3.9%, according to CoStar data the report cited.
More: Austin's downtown commercial, office space seeing record vacancy rates. What comes next?
"The office market continues to transform in response to companies' changing needs for space. Vacancy rates have risen over the past five years, and combined with rising inflation and interest rates, this has led to a halt in developers breaking ground on new office construction," the report said. "The era of tech giants dominating entire buildings is fading, opening opportunities for a wider range of businesses to access downtown's prime location. This diversification is a source of stability for downtown Austin."
Downtown is home to 15,330 residents and 12,720 residential units. With more than 2,600 new residential units in the pipeline, increasing supply by about 28%, downtown's appeal as a vibrant urban neighborhood continues to grow.
More: Demand for office space continues to struggle, while downtown Austin living in high demand
"Although developers and owners have experienced some headwinds, added concessions like incentives and discounts have created an opportunity for a wider range of individuals and families to live downtown," the report said.
Rental prices downtown remain above pre-pandemic levels but have dropped from their 2022 peaks due to a surge in new apartment supply driving competitive pricing.
The apartment vacancy rate has increased to 12.7%, up from 9.7% in 2019. Higher capital and materials costs, along with decreased demand, have slowed new construction, but more than 1,400 units are expected to be completed in 2025, maintaining pressure on property owners to stay competitive.
"Austin had the largest decline in median asking rent of 44 major U.S. metros analyzed by Redfin in January 2025," the report said. "The main driver of this decrease is that Austin has built new apartments at a far greater rate than other cities."
Interest rate hikes over the past three years have cooled the housing market from the post-pandemic buying frenzy. Prices have softened slightly, and average days on market increased from 84 in 2023 to 123 in 2024.
"The condo market has transitioned from a sellers' market to a buyers' market, and this trend is expected to continue as more units are delivered to the market," the report said.
More: The Modern, a 56-story condo high-rise in downtown Austin, marks construction milestone
Downtown's development pipeline has contracted over the past two years, a trend expected to continue throughout 2025.
"Like other cities across the nation, Austin is experiencing the impact of larger macroeconomic forces such as increased interest rates and inflation. We have also experienced such a boom that a slowdown is an inevitable and healthy phase of sustainable growth," the report said. "This slowdown allows the market to absorb its recently built projects, ensuring buildings are fully utilized and contributing to the vibrancy of our urban core."
Eight projects are due to wrap up this year, adding about 3.9 million square feet of space. Notable developments include the Republic office tower, which has attracted tenants, and the Waterline, which will be downtown's tallest tower and an iconic landmark alongside the Independent and Frost Bank Tower.
In 2024, five projects totaling 1.11 million square feet were completed. At the end of March, 13 projects were under construction totaling 6.6 million square feet: 1.3 million in office space, 2.6 million in mixed-use, nearly 2 million in residential, and 653,500 in hotel space.
These figures reflect a slowdown in private development while public infrastructure investment ramps up.
Several major infrastructure and mobility projects are either under construction or breaking ground soon. These include I-35 Capital Express Central, Project Connect, Waterloo Greenway, Capitol Complex Project and the new Austin Convention Center.
Convention Center
Closed for demolition in April 2025, the Convention Center is set to reopen in late 2028 ahead of the 2029 spring festival season. The $1.6 billion project is funded by hotel occupancy tax and Convention Center revenue.
Capitol ComplexPhase II will deliver 525,000 square feet of office space and complete the Capitol Mall, providing a continuous connection from the Capitol to the UT campus. Completion is anticipated in late 2026.
Project Connect Phase I light rail will cover 9.8 miles in Austin with four key stations within the downtown footprint.
Waterloo GreenwayPhase II will add nearly 1,550 new trees, 200,000 mature plants and 10 acres of seed mix.
The job market downtown and citywide continues to be strong, the report said.
The Austin metro area's unemployment rate fell slightly from 3.4% in January 2024 to 3.1% in January 2025, remaining below state and national levels. Despite layoffs at some large tech companies, downtown employment has grown steadily over the past four years and is now 14% higher than its early 2020 peak.
Downtown's hotel occupancy rate is now 55.8%, down from 72.6% in 2019, according to CoStar figures.
"Although the demand for downtown hotel space increased by 3.6% over the past year, the market is beginning to soften as the supply of new rooms begins to outpace demand," the report stated. "The Austin Convention Center closed in April 2025 for their 4-year reconstruction, and hotel operators are cautiously optimistic as conventions and large meetings move to area hotels."
Retail occupancy rates have stayed steady over the last year, remaining above 97%, and tenant demand for downtown locations remains strong, the report said.
Downtown's retail market bucked the general trend, with storefronts almost fully occupied at 97% — about the same level as before the pandemic, when the retail occupancy rate was 96.8%.
"However, rising construction and labor costs have created a significant hurdle for some businesses to make the tenant improvements needed to enter the market," the report said. "This also puts financial pressure on landlords, who increasingly need to make concessions to close deals. Addressing these cost challenges would unlock even greater potential, allowing more businesses to follow their desire to be in the heart of Austin."
Residents: 15,330
Employees: 131,833
Residential units: 12,720
Hotel rooms: 15,000+
Sq. ft. under construction: 6,632,922
Sq. ft. of planned space: 11,538,073
Source: U.S. Census Bureau; Downtown Austin Alliance
This article originally appeared on Austin American-Statesman: Report: Despite challenges, downtown Austin hasn't lost its allure