State of the Central Texas commercial market

State of the Central Texas commercial market

By Steve Shire Friday, 05 December 2008

A commercial agent can help you gain market knowledge so you can understand what is fair and reasonable in the commercial real estate market. The Central Texas office market ended the third quarter of 2008 with a vacancy rate of approximately of 12.6 percent versus 11.6 percent at the end of the second quarter.

Nationally, office vacancy rates are running a little under 12 percent, meaning Austin is approximately 0.6 to 0.7 percent higher than the national average. Subleases are on the upswing. These types of leases represent space that was occupied and vacated early or perhaps space in which the existing tenant does not need the extra room anymore and is looking to sublet to another tenant. The current sublease market represents approximately 877,000 sq. ft. of available space and is increasing.

There are three classes of office space: A, B and C. Class A space is recognized as higher-end space. During the third quarter, the absorption rate — defined as how fast space is leased — in Class A office was a negative 213,301 sq. ft. Class B and C space showed positive absorption, a sign that tenants are generally choosing rate over amenities.

Rates within the Austin area averaged $25.87 per sq. ft. per year, which represents an average decrease in leasing rates by 1.7 percent. With the financial crisis looming on the horizon, this bodes well for tenants with lower rates and prices for commercial property decreasing.

Construction-wise in the third quarter, 28 buildings totaling 888,133 sq. ft. were completed, compared to 24 buildings totaling approximately 1 million plus sq. ft. in the second quarter of 2008. For the first six months of 2008, office properties had an average sales price of $180 per sq. ft. versus an average asking price of $278 per sq. ft. in 2007.

Industrial market

The local industrial market represents an opportunity to move into an office warehouse at a lower rate. Industrial properties are primarily made up of flex and warehouse space. Flex space can be described as a property that looks more like an office/showroom or has a retail-type appeal, as opposed to a typical warehouse that is used for manufacturing or storage space. Flex properties showed a decrease in vacancies during the third quarter from 16.2 to 15.8 percent, while warehouse space vacancies increased from 7.6 to 8.1 percent.

Sublease space increased to approximately 293,000 total sq. ft. as compared with 284,000 sq. ft. in the second quarter, giving new tenants an opportunity to lease warehouse and flex space at a discount.

Approximately 261,000 sq. ft of flex property is under construction in Round Rock. Up to 1 million sq. ft. of space is available at Verde Springbrook Corporate Center in Pflugerville for distribution, warehousing or manufacturing. The current warehouse inventory in Georgetown is approximately 2.3 million sq. ft. with vacancies of 17.5 percent. Purchase price on warehouse-type property averages $53.70 per sq. ft., compared to an average selling price during the first quarter of $45.54 per sq. ft.

Retail market

The retail market remained flat for the second quarter in a row. When negotiating rents, improvements and expenses for retail space, the buyer should be careful and know what is reasonable.

Retail vacancy rates during the third quarter came in at approximately 6.8 percent with average rates increasing to $20.62 per sq. ft. There were 10 buildings completed that total 222,679 sq. ft. with approximately 1.2 million sq. ft. under construction. The top five retail projects in the Austin area based on square footage were in Round Rock, Northwest and Central Austin.

Absorption rate: The rate at which rentable space is filled. Net absorption is equal to the amount occupied at the end of a period minus the amount occupied at the beginning of a period and takes into consideration space vacated during the period.

Article provided by Senior Associate Steve Shire of Buls Hodge Commercial Real Estate, E-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Visit www.Austin-Office.com.