Austin’s Tech-Leasing Boom Stalls Without an AI Backup Plan

The narrative of Austin as the new San Francisco has sadly come true — just not in the way Austinites may have wanted. 

The budding Texas tech hub has hit a difficult adolescence, encountering the downside of the boom and bust cycle of tech funding and growth, unable to keep up the rapid expansion that made the state capital a center for relocations for the last decade. 

Office vacancies in San Francisco remained stubbornly high during the first half of the year, hitting 26.3 percent, a 2.3 percent shift from last year, according to research by collection agency the Kaplan Group. But Austin, which previously had less empty office space, found its vacancy jumped 5 percent through early 2025 to hit 27.2 percent. In pre-pandemic 2019, Austin’s office vacancy was an almost Manhattan-like 10.9 percent. 

The rise in office vacancy followed a loss in tech jobs. Austin’s number of workers from bigger technology firms declined 1.6 percent in 2024 and jobs at startups dipped 4.9 percent, according to venture-capital firm SignalFire. And the city has the
second-largest office construction pipeline in the nation, behind Boston, almost ensuring an oversupply scenario.

At the same time, AI has become a big driver in San Francisco office leasing. Research from brokerage JLL shows that the AI sector leased 2.5 million square feet in 2023 and 2024, with nearly 1.5 million square feet in leases expected in 2025. That leasing has become a major driver in buttressing not only San Francisco’s office market fortunes, but also the city’s economy. 

Currently, Downtown Austin is struggling to recover. Employment-related foot traffic is 70 percent of pre-pandemic levels, per the Downtown Austin Alliance, a business group. Meanwhile, office space in East Austin remains empty, with a 44 percent vacancy rate, per local real estate agency Aquila Commercial, and tenants are being more selective. 

Significant subleases dot the landscape, too. That includes more than 500,000 square feet from Facebook and Instagram parent Meta at the Sixth and Guadalupe tower still seeking tenants. Only a pair of tenants, including PricewaterhouseCoopers, have taken roughly 30,000 square feet there so far this year. And new projects are entering the market this year during the current downturn. That includes the 833,000-square-foot Republic, a block-wide office tower from Lincoln Property Company, Phoenix Property Company and DivcoWest that opened in mid-October just over half leased. 

“Tech tenants simply aren’t taking as much space,” said Alex Taghi, senior director at commercial real estate brokerage Franklin Street. “Compared to how they were leasing space five years ago, companies today are raising less money, and when they do, they aren’t spending as much of it on space.” 

The volume of office leasing declined 23 percent from the first to the second quarters of the year, according to Partners Real Estate data. 

Taghi said that helps explain why the market faces a glut of new space — such as Waterline, an under-construction 74-story supertall set to open downtown next year — and a “race to the bottom” for legacy assets that aren’t as bright and shiny as they used to be. According to Partners Real Estate data, Austin saw negative 42,000 square feet of absorption in the second quarter, pushing the first-half total to negative 414,125 square feet. The new inventory, and firms downsizing when their leases expire, has conspired to keep the market in a funk.

Some recent activity, though, points to a city looking to recover its verve. 

The City of Austin bought empty space at Barton Skyway, an office campus in southwest Austin, and a slate of office owners on Congress Avenue, such as 600 Congress, have or will spend millions on capital improvements to try to look attractive to new users, compliments of a city investment in a new streetscape. 

Austin fundamentally remains a second- or third-tier market for tech companies, though. Big Tech by and large isn’t based there like it is in the Bay Area and places like Seattle and New York, and persistent waves of downsizing and remote work have made the Texas city less of a destination for expansion. 

“There’s an innovation economy that we are experiencing, even if it’s at a slower pace,” said Jenell Moffett, a senior vice president at the Downtown Austin Alliance. “Austin over the last 15 years really boomed and had this unprecedented growth. That’s very challenging to maintain.”

What that looks like today, said Moffett, is businesses leasing one or two floors instead of five or six. 

Austin remains in the shadows compared to other Texas metros when it comes to luring truly large corporate HQs. Austin only has two Fortune 500 headquarters, while Dallas-Fort Worth and Houston have 50 combined. Austin, Taghi said, has always been the younger sibling compared to the other two. But it’s starting to play in the same field, and led Dallas and Houston in total corporate relocations between 2018 and 2023.

The story truly changed in 2022, when Austin became a magnet for California tech companies seeking to leave the more regulatory-heavy Golden State, said Steve Triolet, senior vice president of research and market forecasting for Partners Real Estate. Both Oracle and Tesla moved to town, and a flood of new arrivals helped fuel a luxury housing boom. 

At that time, there were roughly 6 million square feet of office development in the pipeline, including the Waterline, which started construction that year, and the city’s tech job base was booming. New companies promised to create nearly 27,000 jobs in 2021 alone. But that change didn’t last, in large part due to the city’s rising cost of living.

Boosters believe Austin has shown signs of inching back toward its better days, though. Venture capital, a key barometer for an aspiring tech capital, has had a solid start to the year, with $1.8 billion raised for Austin firms in the third quarter of 2025. 

Taghi said he hopes Austin pursues more defense tech firms, like Saronic, which makes autonomous marine vessels and leased roughly 413,000 square feet at the end of 2024. Silicon Hills (as Austin is known in some tech circles) is never going to dethrone Silicon Valley, so he believes it should continue to concentrate on bolstering manufacturing and new tech, like Base, a successful home battery firm. 

Also, as AI continues to grow nationally, there will be moves to open new offices in Austin eventually, Triolet said. The city’s affordability crisis has been tamed somewhat, with a recent building boom in apartments between 2021 and 2023 cutting rents. There’s also ongoing infrastructure investment, including a new airport, highway connections to San Antonio, and Project Connect, an ongoing investment in transit and a new light rail system, all to better connect the sprawling metro.

Like many of the bands returning to ply their songs at the annual SXSW music festival, Austin isn’t the brand-new phenom turning heads. It can still attract a crowd. 

“The talent base is here, the ecosystem is here, the infrastructure is here,” Taghi said. “We’re ready for the next wave of big companies.”