Retail follows rooftops — and so does office space

By Justin Sayers – Senior Staff Writer, Austin Business Journal

Mar 9, 2025

In 2018, when MA Partners LLC was starting construction on the 35-acre Hutto Co-Op District, partner Bob Wunsch said they decided the project would be phased out based on tenant demand.

A year earlier, the Carrollton-based developer entered into an agreement with the city of Hutto to turn the former agricultural site into a vibrant mixed-use district adjacent to their historic downtown. They started with a new City Hall and library, along with other public spaces. They then moved on to a wealth of retail sites that are now home to the likes of Southside Market, Top Notch Burgers and Jack Allen’s Kitchen. Visitors can now park in a new six-story garage.

While future phases are set to include more retail, multifamily elements, entertainment options and hotels, the developers pivoted to another use early in the build-out: they broke ground about a year ago on a four-story, 68,000-square-foot office building with ground-floor retail after they were approached by an unidentified Fortune 500 tenant.

It’s set to open soon, Wunsch said, and one tenant has already fully leased the second and third floors, with 17,000 square feet available on the fourth floor and 9,800 square feet of retail available on the bottom. Leases are hovering around $40 per square foot plus triple nets — higher than the market average.

“We’re pretty sure we’ll fill that up pretty quickly,” Wunsch said.

That’s quite a feat at a time when office space is going sour in Austin, but it’s part of a growing trend in Austin’s fast-growing suburbs, where cities and developers are aiming to bring more office users to serve as the catalyst for community hubs. In addition to the Co-Op District, other projects include The District in Round Rock, The Bell District in Cedar Park, Northline in Leander, Project Two Step in Kyle and more.

Market all over the place

Hutto’s success comes at a unique time in the Central Texas office market.

Dragged down notably by downtown Austin, vacancy rates remain sky high as the market continues to recover from shifts toward remote working that began during the pandemic. Speculative office projects remain on hold because developers say they are hard to finance without tenants. But many people said there are signs of optimism like companies starting to shift back to the office and trying to entice their employees with higher quality office spaces that are closer to home.

The Austin area’s office market vacancy remained at 24.3% in the fourth quarter of last year, while the construction pipeline and deliveries declined 45% year-over-year, according to data from Houston-based Partners Real Estate. But that was slightly lower in the suburbs — 22.8% vacancy— and the entirety of deliveries during that quarter were outside of the Central Business District.

Downtown Austin remains the epicenter of development, as there is more than 2.2 million square feet of office space under construction, according to Steve Triolet, senior vice president of research and market forecasting for Partners, But pockets like Cedar Park and East Austin are gaining momentum, signaling that the next phase of the city’s office market expansion is heading in that direction. Plus the next wave of construction is focused on class A office buildings as companies prioritize modern, amenity-rich workspaces.

“The newest wave of office construction isn’t just about space — it’s about experience. Fitness centers, rooftop terraces, and on-site dining are becoming the standard, not the exception,” Triolet said.

Experts remain bullish on the return of the office market but maybe not in the suburbs.

“You’re starting to see that first early trend in 2025 where some of these remote companies or heavily hybrid are coming in to build to more of an in-office culture,” said Ryan Kasten, partner and managing director of Partners’ Austin and San Antonio offices.

What he isn’t quite seeing yet are high-rises popping up in suburbs. He acknowledged it makes sense for cities to want to grow out that sector because it balances out housing and industrial growth and attracts higher-paid workers who would spend in the community.

“But at the same time, it is challenging to build office to scale in the suburbs because you alienate an entire workforce south of Austin or far west of Austin. So the natural Domain cores and the Central Business District still become the best way from a demographic standpoint to attract all employees from the MSA,” Kasten said.

He said the current trend in the suburbs is to build smaller office products surrounded by amenities that attract tenants like regional title companies, local general contractors and insurance companies. With all the space earmarked for development, he doesn’t expect larger office projects in the suburbs to kick off for five to seven years without being heavily pre-leased, adding that multifamily and retail are still more imminent bellwether developments.

“Organic growth-wise … It’s going to be a very long horizon,” Kasten said. “If Austin becomes a pretty strong relocation for California companies like it’s been for the last 20 years … that very well could speed that recovery process. But until we have net new corporate office relocating, it’s going to be a long haul in the suburbs for office.”

Suburb goes all in on office

At least one city outside of Austin is going all in on office space: Cedar Park.

Cedar Park has several office projects ready to deliver in the next two to three years, including the 300,000-square-foot project Cedar Park Professional Center from Balcones Real Estate Group; a 30,000-square-foot co-working space from Austin-based FUSE Workspace; and what could be in the city’s new downtown area called the Bell District. Riverside also owns more than 200 acres that could be developed into an office campus called Northfork at Cedar Park and has a 63,000-square-foot building permitted for Presidio II.

Rob Shands, partner at Austin-based RedLeaf Properties LLC, which is the master developer of the 54-acre Bell District, said when they first joined forces with the city on the project, office space was expected to be a big piece. But, the plans shifted to prioritize retail and multifamily development because of the pandemic.

Now, he said they’re reevaluating again based on tenant interest and market data – and they could potentially eclipse the planned 170,000 square feet of office space. He said Cedar Park highly desires the product as it’s a key piece toward making the project a “high-quality experience,” as office employees drive lunch business, activity and daytime buzz.

“What we’re working on and trying to do with Bell is really position it as something a little bit different than what the typical suburban office might look like,” he said, referring to smaller buildings, different formats and surface parking. “These traditional suburban office buildings are geared to really accommodate a wide variety of tenants whether it’s traditional office users or flex advanced manufacturing type users. What we’re working toward in Bell is to create that premium Class A office experience that is integrated into that mixed-use district.”

Arthur Jackson, Cedar Park’s Chief Economic Development Officer, said office space is the biggest need for the city of about 78,000 that is just northwest of Austin. He estimated there are 40 or so office-related economic development projects in the works, driven by the presence of Plug and Play, a startup incubator that is aiming to grow companies in the cybersecurity, artificial intelligence and semiconductor industries.

“I think companies are also looking at how do we improve our company culture and not have to have our employees sit in an hour, hour-and-a-half commute or more just to get into the office because we want them back,” Jackson said. “There’s nothing wrong with wanting them back, but now let’s figure out, how do we make the most sense of that? And if most of your employers are living in a certain area, maybe Cedar Park, it may make sense for you to do office space here, versus downtown Austin, where it is also cheaper for a lease rate.”

While it may be cheaper than downtown, Shands said cost remains a barrier, as they have to have higher rental rates than historical amounts to mitigate the costs of construction. But he said that they are encouraged by the fact that tenants are willing to pay a premium for quality space.

Jackson said another barrier is just explaining to tenants how they differ from downtown Austin. While they do have interest from some large companies for headquarters relocations, what they will offer is different than a single-tenant high-rise in Austin.

“Anytime I talk to developers who are hesitant in breaking ground speculatively on a building because of the vacancy rates in larger, more dense downtown areas, I have to remind them that this is a different market,” Jackson said. “This is a different product, these are not being designed as high-rise, single-tenant users. These are ones where you’re going to have folks that come in, lease up 10,000, 15,000 square feet at a time.”

Other districts

California-based Mark IV has two office products in Round Rock – Summit 1 and Summit 2 in La Frontera near the Dell Technologies Inc. campus – that have been 100% leased for several years, and they still get a lot of interest, according to senior vice president Randall Tuller.

That was one of the main drivers for why the company picked the city, which is Austin’s largest suburb at 130,000 people and just north of the city, for its project The District. Mark IV recently broke ground on the 118-acre mixed-use project, which could include 2 million square feet of office space among other uses. That will include the construction of the first office building, a 207,000-square-foot building off Main Street called 100 Marshall Circle, and a second office building that is likely to exceed 10 stories and encompass between 280,000 and 320,000 square feet.

Tuller said the goal has always been to stay ahead of the market. The company has specialized in office product for over a half-century in business, and now they’re seeing tenants essentially demand “a hospitality concept with office in new builds,” meaning access to amenities, in-office lounges and more. The submarket that includes Round Rock has less than a 10% vacancy on Class A product and Austin has 6.5 million square feet of leases expiring over the next three years, which are pluses for the developer. Also, Round Rock has attracted high-salary employees.

“That’s basically our thesis for our District,” Tuller said.

Wunsch, of MA Partners, said the firm is typically focused on residential development but decided to be flexible based on the demand, leading to its work on the Hutto Co-Op District. He said he expects office space to continue to be in demand in Hutto, which is northeast of Austin and has a population nearing 40,000. It’s also near the Samsung Electronics Co. Ltd. factory in Taylor, which is going to draw vendors.

But the biggest driver is affordability. He estimated that the company’s construction costs have doubled in the last four years, and those prices are passed down to consumers. The suburbs generally tend to be cheaper.

“I think it’s a viable market long-term because of affordability,” Wunsch said.

In nearby Leander, a city of about 80,000 northwest of Austin, Baltimore-based St. John Properties Inc. has already committed to building a 120,000-square-foot office building with retail space and could potentially build three more projects in what’s envisioned as the suburb’s new downtown.

Brooke Harlander, the Austin-based regional partner for St. John, said the first building is fully permitted, but given the banking market, it’s hard to get a loan to finance it. St. John has been marketing it for a while and has received strong interest in the retail piece and from smaller users. Bigger tenants have recently started calling.

“That tells me that maybe things are starting to thaw,” Harlander said. “I think everyone’s been reading and tracking return-to-office over the last two years. Are we seeing a big surge? I would say not yet. But we’re hopeful that it’s starting to open up a bit.”

They pitch tenants on time savings. That not only includes the reverse commute but even things like parking on a surface lot, as opposed to a parking garage and the ability to be in a walkable, retail, residential true class mixed-use environment – all factors on why they’re “bullish” on Northline.

But she said suburban Austin is in many ways still a bedroom community. Those demographics are starting to shift – but it’s also going to still take a cultural shift for many.

“People still think it’s far out but it’s not,” Harlander said. “It’s just a matter of as the city matures and more people are opening their eyes to these new markets that now have retail and people don’t want to commute.”

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