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While Austin is uniquely positioned to weather economic storms better than most US cities, the recession has spread into the commercial real estate market. The Austin office market has held together much better than some of the other markets in the country but there is no doubt that the overall lack of job growth and economic activity continue to put pressure on vacancy rates, building owners and overall rental rates. While it appears that further layoffs in Austin are unlikely, without new job growth many of the vacant office buildings in Austin will not be successful in attracting companies. Effective rates for many sectors have been in decline for approximately 18 months due to decreased demand from large institutional users along with a significant number of new Class A suburban buildings being delivered to market in 2008/ 2009. This has primarily impacted existing Class A buildings, as they are now in competition with new buildings for long term users of approximately 5,000 SF and up. Landlords are getting very aggressive in order to keep existing Tenants and also to attract new Tenants. Right now is an excellent time to take advantage of a significantly depressed market and negotiate a very aggressive deal for your company.
Forecast: “Rates remaining stable through 2010, with a high chance of free rent and leasing concessions.” Everyone has different opinions of what’s going to happen over the next 12 months. Our view is based off actual deals we’re currently negotiating, along with frank discussions with owners and asset managers. We see effective rates (average rate inclusive of any free rent) remaining stable over the next few quarters. Class A buildings in the NW and SW sectors should start to see modest decreases in vacancy rates, and will spread to the CBD soon after. Class B buildings may see an increase in vacancy rates as there is a flight to quality and nicer buildings. It will be extremely important to “shop the market” for the foreseeable future. If you’re able to uncover a few buildings that are hurting due to a large vacancy or other variables, it’s possible to get a below market deal or utilize that information as leverage elsewhere. It’s impossible to know how long this will last. Our opinion is that without a major change in the regional economy, Austin should remain a Tenants market for the majority of 2010 and possibly into 2011.
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