The Grubb & Ellis report for Austin shows that after postingnegative absorption of 80,697 in the first quarter, the city'soffice came back in the second quarter byposting 257,195 sfpositive absorption. "Despite the healthy overall positive growth,class A saw net absorption totaling a mere 13,654 sf as tenantsflocked to cheaper class B space (which registered 204,184 sf ofpositive absorption) in the face of rising rents and a souringnational economy," the report states. New construction totaledapproximately 379,000 sfin the second quarter of 2008, a 60%decrease from the first quarter; in the next 12 months, 2.6millionsf of speculative office space is anticipated throughout theAustin market.

Austin managed a rent increase despite the market conditions,with citywide rental rates rising by 78 cents to $27.87 per sf peryear--a record high. Grubb & Ellis expects that, as officebuildings continue to trade throughout the Austin area, "rentalrates will likely continue their march upward as landlords attemptto meet their investment parameters," but the forecast calls for aneventual leveling off of rates as several million sf of new spaceenters the market over the next 12 months.

In San Antonio, the rebound produced 145,844 sf of positiveabsorption in the second quarter. Grubb & Ellis says that thepositive gain "offers a sense of comfort that the Alamo City willstay relatively shielded from major disturbances on a nationallevel." With some 1.8 million sf of new office space underdevelopment, the majority of new construction is occurring in theNorth Central and Northwest submarkets. The delivery of the newoffice buildings is staggered over the next four to six quarterswhich should help in the absorption of space, according to thereport.