Austin Office Space Growth & Recovery

Austin continues to show strong signs of recovery and has now posted its 6th straight quarter of positive absorption. The market absorbed almost 500,000SF of vacant office space and ended the 3rd quarter with a citywide vacancy rate of 12.9%. Average quoted rates are slightly up to $29.00 for Class A, $21.62 for Class B, and $17.80 for Class C. Overall, we are seeing the lucrative free rent and tenant improvement packages starting to recede and landlords are demanding higher rates on the most desirable spaces. There still are select buildings and newer projects, however, which are offering aggressive deals to attract new Tenants. The market is definitely heating up, but at a moderate pace so far.

The largest lease signings in Austin in 2011 include the 124,000SF lease signed by Polycom at 7700 Parmer Lane, the 93,000SF lease signed by Pervasive Software at Riata, the 68,000SF leased signed by Orthocare at 7000 West and the 63,000SF lease signed by Chase Source Real Estate at Northview Business Center.

Subleased Office Space Patterns

Sublease space that was on the market due to the recession has decreased dramatically and there is currently only about 394,600 SF available. There are still numerous sublease options of all sizes and locations in the market however; we are seeing a drop in new options that are coming on the market.

Austin Commercial Real Estate Forecast: 2011-2012

Our forecast for the remainder of this year and beyond is positive for landlords. We continue to see companies of all types expanding in Austin and local companies growing organically. There are also numerous larger tenants that are currently in the Austin market looking for larger blocks of space in the 100,000SF range. One of the primary reasons that rates have stabilized and vacancy rates have decreased is because of the lack of new office buildings being delivered to the market. Currently there is only 315,000 SF under construction with almost all of it preleased before breaking ground – including the 130,000SF Cirrus Logic Headquarters in Downtown Austin. In order for money to start flowing for new speculative office projects, we will have to see an increase in class A office rates by approx $4-5 per square foot to justify new construction costs. Right now we are riding a wave of six quarters of solid absorption with better news on the horizon.

As previously mentioned, there are still projects in Austin that are experiencing high vacancy rates and that are very anxious to cut an aggressive deal for the right tenant. We recommend that tenants take advantage of the opportunities in the market now before higher occupancy & demand for space pushes rental rates higher. Contact us with any questions you may have or to talk further about the Austin market. We would be happy to discuss the options available to you and how our firm can assist to maximize your real estate dollar.