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.

|

Although rents are expected to continue rising, sublease spacehas increased to 258,475 sf compared to the second quarter of 2007when subleasespace was 50,170 sf. The 11.9% direct vacancy rate forthe quarter represented a decrease of 50 basis points during thequarter, with class A vacancy at 13.2% and class C space tighteningto 13.2%, a decrease from 13.5% in the previous quarter. Excludingthe South submarket where vacancy increased by 60 basis points, allremaining submarkets posted decreases in vacancy.

|

In the Dallas/Fort Worth office leasing market, the slowingduring the secondquarter still produced 152,992 sf of netabsorption, which wasevenly distributed across both the class A andclass B sectors. The Grubb & Ellis market survey notes thatthis is a significant decline from the 579,317 sf of growthrecorded during the first quarter. Class C properties registered111,073 sf of negative absorption, which is a negative swing ofmore than 250,000 sf from the first quarter. Year to date, themarket has absorbed 778,988 square feet, mostly in the class Bsector with 742,147 sf.

|

The report attributes the market's 20.9% vacancy rate primarilyto the classC sector, where vacancy increased by 100 basis pointsto 20.2%. During the second quarter of 2008, the overallfull-service asking rents averaged $22.23, which is slightlyhigher. Research suggests that there may be a trend of class Atenancy relocating to class B space. "The feeling that brokers aregetting from prospective clients is that they are open to engagingin conversations regarding possible moves and consolidations," theGrubb & Ellis report says. However, right now most businessesare adopting a wait-and-see approach regarding possiblerelocations.

|

In Houston, with a market pumped up by the energy sector, Grubb& Ellis Co.'s research team has tracked 746,333 sf of netoffice absorption in the second quarter. Results from other reportsmay vary, but the bottom line is Greater Houston is gainingtraction as other metros fall victim to the economy.By Houston'sstandards, the Q2 absorption is "moderate growth," says Ariel D.Guerrero, assistant vice president of the local office, who'srolling out the team's quarterly report today. In 2007, the regionabsorbed 6.5 million sf of office space, setting a nine-yearrecord, and 5.5 million sf in 2006. Guerrero doesn't expect that2008 will beat the last two years, but "Houston's still bucking thetrend nationwide."

|

Grubb & Ellis' senior vice president Keith Lloyd says thebulk of the deal-making is coming from energy and engineeringfirms, with the Katy Freeway/Energy Corridor holding the lead forabsorption and construction. "They are driving that market, pureand simple," he says.

|

In Q2, the Katy Freeway/Energy Corridor accounted for 216,640 sfor not quite one-third of the total absorption. Its year-to-datetotal is 633,228 sf, with the CBD at a distant second with 233,042sf. The Katy Freeway/Energy Corridor submarket, with 16.5 millionsf in 146 buildings, is 93.41% leased. Its class A space totalsjust 249,808 sf and it's 97.15% filled.

|

The Houston market also has its share of new construction underway, with some tenants already committed to some of the newprojects. A case in point is where Core Real Estate LLC has plantedDow Chemical Co. into 280,000 sf of its 343,521-sf Plaza at Enclaveat 1254 Enclave Pkwy. The Energy Corridor project will be done inAugust or September.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.