EASTSIDE SPECIAL: AUSTIN’S FOURTH PRIMARY SUBMARKET? 2Q 2016 Special Report
AQUILA 2Q 2016 SPECIAL REPORT
EASTSIDE SPECIAL: AUSTIN'S FOURTH PRIMARY SUBMARKET? Just
beyond
the
downtown
skyline lies Austin’s Eastside. Less than a mile from the CBD sits one of Austin’s most authentic, eclectic and rapidly changing neighborhoods. An area that has, for most of its recent history, been a working-class neighborhood is now one of the
HYDE PARK
UPPER EASTSIDE
city’s hippest hangouts. Named as one of the hippest neighborhoods in the country , coffee shops, bars, 1
breweries and taco stands can be found just steps from rows of quaint
MUELLER THE UNIVERSITY OF TEXAS
CHERRYWOOD
CENTRAL EASTSIDE
two-bedroom houses that have stood there since the days of the Great Depression.
DOWNTOWN AUSTIN
In 1990, out of the 21 census tracts
LOWER EASTSIDE
that make up the “Eastside,” 15 were eligible for gentrification2, but only one actually achieved gentrification status over the next ten years. In 2000, eighteen tracts were eligible for gentrification, and all but four of those have achieved it today – more than all other eligible tracts in Austin combined.3
EAST CESAR CHAVEZ
WINDSOR PARK
AQUILA 2Q 2016 SPECIAL REPORT
East Austin Household Income
Over the past decade, East Austin
100%
$75,000
has become a hotbed for house-
90%
$67,500
flippers, graduate students, young
80%
$60,000
professionals and new families. Multi-
70%
$52,500
family development has skyrocketed,
60%
$45,000
drawing a new demographic to live
50%
$37,500
in the neighborhood. Over the past
40%
$30,000
six years, more than 1,700 multi-
30%
$22,500
family units have delivered on the
20%
$15,000
Eastside. As of the second quarter
10%
$7,500
2015, there were another 1,900
0%
with almost one thousand more approved for development and ready
$0
2014
<$25k
$25k-50k
$50k-100k
$100k-200k
>$200k
Median household income
to break ground.
East Austin & Citywide Education
To see the appeal of the neighborhood is easy: its relative affordability within
90% 80%
the city, proximity to downtown and
70%
rich culture have made it a popular
60%
place to live and play. And now,
50%
the authenticity and sense of quirk
40%
that
30%
originally
2010
2000
multifamily units under construction,
drew
in
Austin’s
creative class is attracting new office prospects as well.
20% 10%
The Eastside is serving up to tenants what it is they are looking for: close
0%
East Austin
Austin Citywide
proximity to CBD, affordability, a
2000
plethora of nearby amenities, diverse transportation options and “creative”
East Austin
High school graduate or higher
Austin Citywide
Bachelor's degree or higher 2010
2014
Median Home Values $250,000.00
office space build-outs. As rents in Austin’s primary three office
submarkets
steadily
climb,
demand has increased for welllocated,
amenity-rich
$200,000.00
$150,000.00
alternatives.
In the current real estate cycle, East
$100,000.00
Austin has emerged as a frontrunner to be Austin’s next established office
$50,000.00
market. $0.00
2000 Median Home Value East Austin
2010
2014
Median Home Value Austin Citywide
(Source: US Census and American Community Survey)
AQUILA 2Q 2016 SPECIAL REPORT
A DIFFERENT OFFICE PRODUCT While many of the Austin office buildings AQUILA
Much like the houses in the area, the office buildings
traditionally analyzes are large, class “A” multi-tenant
each have their own unique architecture. Eleven11,
properties with built-in amenities such as fitness
for example, features a rust-colored facade with a
facilities, delis, etc., the office projects rising on the
striking cantilevered terrace covering the sidewalk
east side are of quite a different ilk. You won’t find
below. Further east, you will find old warehouses
high rises or large, sprawling corporate campuses
converted into creative office suites alongside
here. Instead, offices on the Eastside range from
breweries and bistros. These aesthetics and amenities
converted warehouses to new mid-rise, mixed-use
tend to attract a millennial-minded tenant-base.
construction. These office projects often embody the eclectic vibe of the neighborhood, giving way to multiple “creative office” projects under development. Given the unique positioning of East Austin within the overall office market, this budding area offers spaces to suit the needs of different types of tenants. Typical spaces offer open ceilings, stained concrete floors, and exposed brick and ductwork. Floorplates are also smaller than those in
Eleven11
the other primary submarkets, resulting in more open layouts. This is largely due to the land-use and development
While established accounting or legal firms continue
restrictions that run through much of the Eastside.
to look for space in the Southwest, Northwest or
Some of the built-in amenities typically found in the other submarkets aren’t found in Eastside office projects. Rather than having an on-site deli or fitness area, offices capitalize on the abundance of pre-existing retail within walking distance. Some companies even offer credit to their employees to make use of nearby fitness studios.
CBD, Eastside office projects are competing instead to attract more creative tenants such as advertising, media, music and web-design companies, which are the fastest-growing segments of talent moving to Austin, and more specifically the Eastside.
AQUILA 2Q 2016 SPECIAL REPORT
DEFINING THE SUBMARKET In order to more clearly analyze the Eastside as an
professionals spending their weekends in the area,
office submarket, we limited the definition of the
whereas the thought of crossing I-35 on a Saturday
East Austin office submarket to the following area:
night was not even a consideration just five years
north of the Colorado river, between I-35 and US
ago. Now, locally-owned businesses thrive east of
183. This area can also be parsed into three smaller
downtown, bringing in customers who might live just
micromarkets: The Lower Eastside, Central Eastside
blocks away or across the country on vacation. What
and Upper Eastside. (See the map on page 7 for
was once a generally overlooked neighborhood full
reference.) These three areas each have their own
of worn-down houses is now being redeveloped into
unique culture and style, attracting a mixed pool of
a tourist destination live with contemporary homes
tenants and office product.
and nationally-renowned boutiques, bars and restaurants.
Lower Eastside
The increase in popularity can be partially attributed to the city designating East 6th as a core
The Lower Eastside is comprised of the area north
transportation corridor, allowing increased traffic
of the river, west of 183 and south of 12th Street.
flow to and from downtown. The added ease-of-
This micromarket is so close to the CBD—just across
access has given rise to thousands of Class A multi-
I-35—that it is almost an extension of downtown
family units being developed over the past decade,
itself. The city has instituted several measures to
with many more under construction and in the
help facilitate growth in the area, and the area has
planning stages.
responded favorably.
Developers are also taking advantage of the Lower
Here you will find the highest density of bars and
Eastside’s popularity with several mixed-use projects.
restaurants outside of downtown. The East 6th
One such project, Eastside Village, is currently under
Street entertainment district, for example, has
construction and offers both a new Class A
seen an explosion of college students and young
Patio at Burn Pizza + Bar on East 6th Street
AQUILA 2Q 2016 SPECIAL REPORT
office building (recently purchased by CIM Group
developer of the Domain in Northwest Austin first
in June) and 800 multi-family units atop ground
dipped their toes into Lower Eastside waters with a
floor retail. Tenants who have signed on at Eastside
little project at 2021 E. Fifth Street in 2013. Targeted
Village early to take advantage of the excitement of
towards the creative workers that reside in the area,
the area include C3 Presents, who relocated their
the project was quickly preleased by EnviroMedia,
headquarters from downtown, and Conde Nast,
one of Austin’s most notable marketing firms. The
who will be opening their new Digital Innovation
success of the development has since been followed
Center in the building.
by another, larger proposed office project, 901 E.
Blocks
away
6th, which is still in the
from
planning stages.
Eastside Village will be Endeavor Real Estate Group’s Plaza Saltillo, which will offer over 100,000 square feet of retail and office space, a public park, and 800 residential units. Plaza Saltillo is one of the city’s two designated
Some of the greatest potential on the Eastside lies in redeveloping existing owner-occupied offices into multi-tenant, Class A buildings.
Adjacent to Eastside Village and
Plaza
Saltillo
are
two more multi-use office developments: The Foundry by Cielo and Fourth & by Capsa Ventures. Currently under construction, these two projects combined will feature over 100,000 sf
Transit
of office space and 115
Oriented Development
residential units. Although
(TOD) sites on the Eastside. The TOD presents an
smaller
exciting opportunity for tenants to capture a whole
developments, the rise of these live/work/play
new mix of commuters who will be brought to their
solutions attest to the growth of the Lower Eastside’s
area from as far away as Leander via MetroRail.
popularity, proving that just one or two developments
Endeavor’s involvement on the Eastside is a testament
are not enough to capture all of the demand in the
to the area’s high demand for office product. The
area.
Food truck park on East 6th Street
than
Transwestern’s
and
Endeavor’s
AQUILA 2Q 2016 SPECIAL REPORT
Starting Rental Rates - CBD vs Lower Eastside Source: AQUILA Market Research Lease Comparables
$45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 1/1/2010
1/1/2011
1/1/2012
12/31/2012
1/1/2014
1/1/2015
1/1/2016
Lower Eastside Starting Rent
CBD Starting Rent
Lower Eastside Starting Rent Trendline
CBD Starting Rent Trendline
1/1/2017
1/1/2018
While large ground-up mixed-use redevelopment
in redeveloping existing owner-occupied offices
projects like the Eastside Village and Plaza Saltillo
into multi-tenant, Class A buildings. Prime examples
are getting most of the hype on the Lower Eastside,
of such projects are the former Goodwill Career
there is a plethora of smaller projects that continue to
Academy building at East 6th and Chicon Streets
change the landscape. Central Austin Management
and the Capital Area Rural Transportation System
Group, for example, has two projects along
office less than a block down the street. These
Springdale Road – Canopy and Springdale General
projects—recently sold to office developers—will
– that will include over 200,000 sf of space across
add over 200,000 sf to the market. Riverside
more than 15 buildings. Also in planning stages
Resources has four total sites of this kind under
is 1719 East 2nd Street. Much like the recently
ownership on the Lower Eastside awaiting lead
delivered 2400 Webberville and 1711 Cesar
tenants to break ground on potentially 300,000+ sf
Chavez projects, this 10,000 sf project embodies
of space between the four of them.
the “creative” solution that small marketing and technology firms are looking for on the Eastside: white-box conditioned with custom finish-outs at a low rent. Some of the greatest potential on the Eastside lies
As demand for limited downtown space increases, the rise of the Lower Eastside as an extension of downtown appears to be imminent. As shown in the graph above, starting rental rates are quickly approaching downtown levels
AQUILA 2Q 2016 SPECIAL REPORT
EAST AUSTIN
51
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6
AQUILA 2Q 2016 SPECIAL REPORT
OFFICE Project Name
Status
Completion Date
Office SF
Developer/Owner
Endeavor
1
2021 E. Fifth Street
Recently Delivered
2014
30,100
2
2921 E 17th St Bldgs B-D
Recently Delivered
2015
100,000
3
2400 Webberville
Recently Delivered
2015 Q2
8,000
4
1711 Cesar Chavez
Recently Delivered
2016 Q2
7,156
Emergence Commercial Realty
5
The Diamond Building at Mueller
Under Construction
2016 Q3
37,198
Catellus
6
atx Factory
Under Construction
2016 Q3
11,500
Vijay Mehra
7
The Station on Manor
Under Construction
2016 Q4
31,600
Lincoln Ventures
8
901 E 6th
Planned
2017 Q1
132,000
Endeavor
9
Springdale General
Planned
2018 Q1
165,000
Central Austin Management Group
10
The Lab on East Sixth (CARTS Site)
Planned
2018 Q4
115,000
Altair
11
Build to Suit Opportunities at Mueller
Planned
TBD
2,000,000
Catellus
12
The Park at Mueller
Planned
TBD
116,000
Catellus
13
6th & Onion
Planned
TBD
100,000
Riverside Resources
14
5th & Onion
Planned
TBD
82,000
Riverside Resources
15
1817 E 6th (Former Goodwill)
Planned
TBD
80,000
Riverside Resources
16
4th & Robert Martinez
Planned
TBD
43,000
Riverside Resources
17
Canopy
Planned
TBD
40,200
Central Austin Management Group
18
2015 Manor
Planned
TBD
23,000
Lincoln Ventures
19
Chavez Village
Planned
TBD
14,618
ECC Commercial
20
1719 East 2nd
Planned
TBD
10,000
Lonestar Syndicate
MIXED USE Project Name
Status
Completion Date
Office SF
Retail SF
Residential Units
Developer/Owner
16,000
256
Cypress
7,500
348
Transwestern
97
Capsa Ventures LLC
208
Trammel Crow Residential
18
Cielo Property Group
21
Corazon
Recently Delivered
2015 Q2
22
Eastside Village
Recently Delivered
2016 Q2
94,500
23
Fourth &
Under Construction
2017 Q2
42,000
24
Alexan on 6th
Under Construction
2017 Q2
25
The Foundry
Under Construction
2017 Q4
75,369
26
The CityLine at MLK Station
Planned
2017 Q3
134,000
11,000
22
CityLine Development
27
Plaza Saltillo
Planned
TBD
120,000
110,000
800
Endeavor
28
One Two East
Planned
TBD
472
Legend Communities
6,440
MULTI-FAMILY Project Name
Status
Residential Units
Completion Date
Developer/Owner
29
Eleven by Windsor
Recently Delivered
257
2013
Windsor
30
7East
Recently Delivered
186
2015
Stonelake
31
Eastside Station
Recently Delivered
330
2016 Q2
Flournoy
32
Spire
Planned
260
TBD
33
8th and Embassy
Planned
176
TBD
AQUILA 2Q 2016 SPECIAL REPORT
for new deals done on the Lower Eastside.
million square feet of office and retail use, and over
While rates have historically hovered around 60%
100 acres of public open space. The development
of those in the CBD, recent deliveries of Class A
is nearing its final stages of construction, with the
spaces within the past year have fetched rates on
majority of commercial space completed with the
par with those in older buildings downtown. With
exception of several build-to-suit opportunities.
over 800,000 sf of office product in its pipeline, the Lower Eastside is set to prove itself as a major player for centrally-located Austin office space.
The most notable tenants of the Mueller district include Seton Healthcare’s administrative campus and Texas Mutual Insurance Co., who announced
Furthermore, Reconnect Austin plans to physically
in April that it will be building its new corporate
remove the greatest barrier between downtown
headquarters next to Dell Children’s Medical
and the Lower Eastside: I-35. The Reconnect Austin
Center – one of largest office deals of the year at
plan proposes to bury I-35 underground and literally
270,000 sf. The close proximity to the new UT
bridge the gap between downtown and East Austin
medical school and Dell Children’s Medical Center
with surface-level walkways, mixed-use buildings
makes the area desirable to medical office users.
and open areas. While such plans will likely not be realized anytime soon, they point to the growth of
As the popularity of East Austin
East Austin as a primary urban area.
continues to grow, tenants and residents Central Eastside
alike will surely desire the next, hippest spots with affordability and
To the north of 12th Street from the Lower Eastside lies
proximity to downtown.
the Central Eastside. The Central Eastside extends up to 51st Street and East to Highway 183. If the Lower Eastside is considered an extension of downtown, then the Central Eastside would be considered an
The Central Eastside is also home Austin’s second
extension of the University of Texas. Just east of I-35,
transit oriented development east of I-35: MLK
UT has its baseball and softball fields, as well as
Station. Cityline Companies LLC is planning the
several administrative buildings. The university is still
Cityline at MLK Station development. Set to deliver
in the market to purchase and redevelop lots as it
in 2017, the CityLine Development will offer over
expands its footprint.
130,000 of office space, 11,000 sf of retail,
The Central Eastside is tamer than the Lower Eastside, as residents are typically graduate students or young families, often new to Central Texas. To that end, multi-national retailers are more apt to lay claim to this area, most notably in the Mueller Community. After Austin’s first civilian airport, Robert Mueller Municipal Airport, was replaced by Austin Bergstrom International Airport in 1999, the 700-acre site was redeveloped into a Planned Unit Development (PUD) by Catellus. The area is replete with single and multi-family housing for over 13,000 residents, 4
and 36,000 sf of residential townhomes, as well as a structured parking garage. Currently under construction across the street, the MLK Station Apartments will also offer 355 multi-family units as well as 11,000 sf of restaurant and retail space. 100,000 sf of office space already exists at MLK Station. Completed in 2015, 2921 East 17th Street Buildings B-D are fully leased and home to several Austin
nonprofits,
including
Sustainable
Food
Center, PeopleFund, Creative Action and Interfaith Action of Central Texas.
AQUILA 2Q 2016 SPECIAL REPORT
Eastside Village
Thoroughfares such as Airport Boulevard, Manor Road and Martin Luther King Jr. Boulevard are examples of core transit corridors connecting the Central Eastside to the rest of Austin, and many retailers are capitalizing on the added traffic generated by the increased accessibility. Manor Road, for example, has several of the hippest new bars outside of the downtown and East 6th areas, as well as Salty Sow, one of Austin’s must-eat restaurants, as evidenced by Michelle Obama’s recent patronage during this year’s SXSW conference. Lincoln Ventures is one of the first office developers to capitalize on the Manor Road frenzy with two creative office buildings under construction at The Station on Manor – just blocks away from the MLK Station TOD – and another mixed-use development set to break ground later this year: 2015 Manor, which has already signed Texas Mutual Insurance Company for approximately 270,000 sf.
Upper Eastside The Upper Eastside, defined by the area north of 51st Street, south of Highway 290 and west of Highway 183, is the least developed office market. Here you will find mainly older, Class B and C office buildings along the highways and mid-to-late-century homes in between. The area is not to be dismissed; however, as just north of Highway 290 lie several industrial complexes, and many would argue that the Lower and Central Eastside looked much like this area does now just a few decades ago. As the popularity of East Austin continues to grow, tenants and residents alike will surely desire the next, hippest spots with affordability and proximity to downtown. Furthermore, with Round Rock just to the north and quickly expanding down I-35 as plans are set in place to ease the traffic flow, the two growing areas will have to meet somewhere in between.
1711 Cesar Chavez
WHAT DOES THIS MEAN FOR YOU? Landlords: The Eastside presents an exciting
Tenants: If you’re looking for an opportunity to re-
opportunity to invest in one of Austin’s fastest grow-
locate within Austin, the Eastside is in high demand
ing submarkets. With so much support from the
and can be a great fit for modern tenants. With
City of Austin to develop the area, and with more
a burgeoning bar and restaurant scene, employees
gracious land-use regulations, the neighborhood
will be enlivened to office within walking distance
has certainly not hit its full potential yet. As long as
of some of Austin’s coolest amenities. Chances are
Austin continues to grow, people are going to flock
some of your employees are already living there.
to the Eastside since it embodies so much that Aus-
Time is of the essence though, as rents are growing
tin stands for: quirky, creative, authentic, unique.
at a faster pace than in other submarkets. One of
This makes the Eastside more of a competitor to
AQUILA’s own clients, for example, signed a lease
capture the media-type and technology firms that
on the Eastside for $12 per sf in 2012. Just three
may have historically looked for space in the other
years later they signed another lease on the Eastside
primary submarkets. An example of such a compa-
for double that amount. With most new build-outs,
ny is Conde Nast. Just five years ago it would have
asking rents are in the low-to-mid-twenties, compara-
been unimaginable to see a multinational media
ble to those in the Northwest submarket.
publishing company sign a lease for space east of I-35. Now, however, the company will feel right at home.
1
http://www.forbes.com/sites/morganbrennan/2012/09/20/americas-hippest-hipster-neighborhoods/#30546b41ccaa
To be eligible to gentrify, a tract's median household income and median home value needed to fall within the bottom 40th percentile of all tracts within a metro area at the beginning of the decade. Tracts considered to have gentrified recorded increases in the top third percentile for both inflation-adjusted median home values and percentage of adults with bachelors’ degrees.
2
3
http://www.governing.com/gov-data/austin-gentrification-maps-demographic-data.html
4
Reconnectaustin.com
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The information contained herein has been obtained from sources believed reliable. AQUILA Commercial, LLC makes no guaranties or warranties as to the accuracy thereof. The presentation of the property is submitted subject to the possibility of errors, omissions, change of price, rental or other conditions, prior sale, lease or financing, or withdrawal without notice. Included projections, opinions, assumptions or estimates, are for example only, and may not represent current or future performance of the property. Information is for guidance only and does not constitute all or any part of a contract.