Office Absorption Slows, But Outlook Rosy

Market watchers at Oxford Commercial say the office sector's outlook is positive although Q1 absorption was just 41,708 sf versus 444,849 sf that was absorbed during Q4 2006. Grubb & Ellis Co.'s research team came up with 261,479 sf of net absorption in Q1 in the 38.8-million-sf inventory, with last year ringing up 1.6 million sf overall.

"Absorption is down across the board throughout the state, but it's still very positive, still going in the right direction," says Ernest Brown IV, managing director for Grubb & Ellis in Austin and San Antonio. "This is more of a statistical slowdown and nothing that has really materialized in the market."

One cue that the office market is firing on many cylinders is sublease space has practically disappeared. "Back in 2002, we had about six million sf of sublease space available," Brown tells GlobeSt.com. "I don't even think we have 300,000 sf left for subleasing."

In the Colliers report, the team says there is 553,000 sf of sublease space available whereas it was 2.8 million sf in 2002. There is 3.8 million of available direct space, down 1.6 million sf from five years ago.

Meanwhile, not a whole lot of inventory is coming on line. Grubb & Ellis reports 1.1 million sf of speculative development is under construction while the Oxford team says 1.3 million sf is going vertical. Because demand is still high and entitlements somewhat restrictive, Brown says he doesn't see the specter of overbuilding rearing its head anytime soon.

"Most of the buildings coming up are based on actual in-place demand or pre-leasing demand," Brown adds. "Most of the stuff coming out of the ground is already 35% to 50% preleased."