AUSTIN–High demand for office space has propelled the marketactivity in the Austin metro area, according to a recent report putout by REOC Austin.

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Doug McGregor, senior office consultant forREOC Austin, tells GlobeSt.com that the decrease in office vacancycomes from several factors including, “relocation or expansion fromexpensive California markets, expanding state government use ofspace, and growth in the technology sector.”

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In the first quarter, more than 284,200 square feet of officespace was absorbed through leases and expansion. This brought thevacancy rate down to 10.5% from 11.6% in thefourth quarter of 2014, and 12.6% in the same quarter lastyear.

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Nearly every sector of the market saw positive net absorption.The Northwest sector saw the greatest growth with76,729 square feet of positive net absorption,which took vacancy to 9.7%.

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As the vacancy across the city continues to diminish, rentalrates are slowly rising. The average asking rental rate this pastquarter was $26.18 per square foot, which is up$0.59 from Q4 2014, and $1.87 from Q1 2013. The highest gains havebeen seen in the central business district, with rental ratesincreasing $3.99 from the previous year to $35.99.

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“Decreasing vacancy rates confirm the need for new supply andincreasing rental rates support the economics of delivering newconstruction,” McGregor says.

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There are currently eight major office projects underconstruction, including the recently begin RollingwoodCenter. The two-building, 215,000-square-foot project, hasalready secured LatinWorks as the anchor tenantfor 50,000 square feet of building two.

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McGregor says Austin can still use some new office projects, buton a limited scale, with projects being user-specific and wellunderwritten.

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In addition to the projects under construction, two moreprojects were recently announced – the redevelopment of theGreen Water Treatment Plant and EastsideVillage. Both projects will deliver office, and retailspace as well as possibly multifamily and hotel.

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While job growth is likely to continue, McGregor warns that thestart-up culture can also lead to a tightening.

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“As great as things have been, its normal for the startupculture to 'adjust', meaning they are setting themselves up forbeing acquired,” McGregor says. “Thus, the rate of increasedemployment as they grow drops off once acquired. The marketneeds to be careful and not overplay the growth.”

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