A New Real Estate Class That Combines Business and Pleasure
XSpace is bringing its unique “commercial condo” concept from Australia to Texas—and finding a good fit in the state’s booming real estate market.
As business relocations to Texas continue, one side effect is a piping hot commercial real estate market. In late 2021, the National Association of Realtors’ list of top commercial office markets of the year was bookended by Austin at #1 and San Antonio at #10. Meanwhile, Colliers’ 2022 Global Investor Outlook recently forecast Dallas as the top market for commercial real estate investment in 2022. Houston is not lagging either: In the third quarter of 2021, it boasted the largest volume of commercial real estate transactions in the country.1
Of course, as every urban Texan knows, the residential side of real estate is also hot. As people move in from around the country, many homes are on the market for the blink of an eye. Into this ecosystem comes a new “commercial condo” concept from XSpace, cofounded by Australians Byron Smith and Tim Manson. The XSpace concept is a blend of existing real estate classes. XSpace units are currently for sale in a nearly completed building 15 minutes from downtown Austin, and they can serve a whole range of functions, from showroom to office to man cave to podcasting studio.
XSPACE PRESENTS AN ATTRACTIVE ALTERNATIVE TO COMPANIES WHO WANT TO OFFER VERSATILE, HIGH-QUALITY SPACE FOR EMPLOYEES IN AN EXPENSIVE COMMERCIAL REAL ESTATE MARKET.
This first XSpace building (others are planned for Houston and Dallas soon) is three levels high, containing 106 customizable units from 300 to 2,500 square feet. The building includes a 3,000-square-foot lounge overlooking Lake Travis and including a commercial-grade kitchen. Almost all units in the Austin building have been sold, with owners planning to use their units in ways that span the business and the personal. “The concept is a sophisticated market adaptation from Australia,” says Smith. “It evolved to bridge a gap between residential and office/commercial.”
Unit owners currently include car enthusiasts, small business owners, high-profile podcasters, and high-net-worth individuals who want a home office without adding onto their home. Roger Clemens has bought a first-floor unit, where he will showcase his memorabilia and run his charitable foundation.
XSpace also presents an attractive alternative to companies who want to offer versatile, high-quality space for employees in an expensive commercial real estate market. One technology company has bought four units together, which it will use as a satellite office. Smith points out that this is a great way to offer employees an interesting place to work while also adding a company asset. Smith and Manson are also seeing real estate investors get in on the action. Some are doing 1031 exchanges, which allow them to avoid paying capital gains taxes by reinvesting proceeds from the sale of a different investment property into XSpace units.
No matter who’s buying, the XSpace cofounders have noticed a strong desire for upscale space and top-tier amenities. This is in line with the much-discussed “flight to quality” trend in real estate, which has seen investors and commercial tenants show a clear preference for high-quality new developments and renovations.
Real estate investor and retired NFL lineman Lyle Sendlein is one of XSpace’s backers and owner of a unit, and he has seen the trend toward quality in this investment and beyond. “I do a lot of investing in multifamily, and as people spend more time in their space [following the pandemic], we are seeing a higher demand for quality—ceiling height, sound barriers, efficiency, so many things.”
The flight to quality means XSpace is well positioned in the market. Units have 18-foot ceilings (in Houston, they will be 20 feet), with an option for putting in a mezzanine, which 90 percent of buyers are opting for. The lakeside location offers nature views with proximity to the heart of Austin. And the shared lounge space on the top floor is vital to the project.
“Community is everything in what we’re doing,” says Smith. “XSpace is for cool and interesting people. You can bump into these very high-caliber, sophisticated guys when you’re there, maybe an ex-pro-athlete or someone who’s interested in seed-rounding your project. You can go up to the community area to take a meeting or watch Monday Night Football—like WeWork without the bullcrap.” The community aspect was a draw for Sendlein. “I’m not somebody who likes to work from home,” he says. “I’m a big networker and like to connect dots. Having a place like that is something I’m excited about.”
As people’s business and personal lives intersect more and more, XSpace offers a wholly new concept that fits emerging needs. (It’s so new that the fire department had to literally rewrite its rulebook to classify the Austin building.)
The real estate market might be extremely hot, but with XSpace, owners get in on the action at an affordable price point. And as XSpace expands to other markets, more Texans will have a chance to hop on board.
1 Dan Katz, “Texas Commercial Real Estate Market Heats Up ‘Like Nowhere Else in the Country,’” Texas Public Radio, December 8, 2021.