Middle Market Digest: This Week in the South and Mountain Regions

Demand for office space, underpinned by steady job creation and elevated corporate confidence, has steadily tightened vacancy rates, pushing rent growth into its seventh positive year, according to a report by Marcus & Millichap The maturing cycle has begun to invigorate construction in markets that led the economic growth cycle, potentially creating areas with supply risk. Most markets remain on track toward strengthening fundamentals, but unique local market dynamics are driving more tactical decisions and raising investor caution.

Most markets continue to generate tightening vacancy rates, pushing rent growth. While tenants favored locating sites in the urban core early in the growth cycle, suburban office demand is accelerating. Tightened yields have encouraged investors to broaden acquisition criteria to encompass suburban office as well as secondary and tertiary markets. Two recent office reports focusing on Austin are featured here.—Lisa Brown

BY THE NUMBERS

AUSTIN, TX—The second-quarter office market report by Avison Young shows that demand for office space from large technology tenants relocating to the Austin market remains strong, driving leasing activity and rental rates to new highs, with a 26.5% increase in total sales volume in the last year. Construction deliveries that were slow to come online during the first quarter of 2017 made for a dramatic rebound during the second quarter, with more than 870,000 square feet of office product delivered. Lower-than-average preleasing in new construction is suggestive of developers' confidence in the Austin forecast, considering a relative slowdown in the metro's business cycle index toward the end of the second quarter.

AUSTIN, TX—The second-quarter 2017 Austin office market report from Savills Studley indicates average asking rents continued to surge in second quarter as class-A rents surpassed $40 per square foot for the first time ever, increasing 4.3% in second quarter and up 11.9% year-on-year. Overall Austin region asking rents averaged $35.60 in second quarter compared to the US Index of $33.13. Landlords in most submarkets remain extremely bullish and continue to push rents higher. The effort to increase amenities and improve building infrastructure has also boosted operating expenses in some properties. In downtown's highest tier buildings, operating expenses (including property taxes) are well above $20.00 per square foot. Limited space options for companies in multiple sectors can be linked to a slowdown in sales and leasing activity to start 2017. Like first quarter, second-quarter office sales of $269.3 million trailed the $556.7 million quarterly average for the past five years. Leasing volume in the Austin region ticked up to 1.4 million square feet in the second quarter, improving from 1 million square feet leased in the first quarter, but still below the long term historical average of 1.7 million square feet leased quarterly. After starting the year with the first quarterly increase since 2014, the class-A availability rate dipped by 22 basis points to 14.5% in the second quarter and has fallen by 221 basis points year-on-year. However, the class-A availability rate in the CBD posted a slight 24 basis point quarter-on-quarter increase to 14.8%.

NEWS AND NOTABLES

DALLAS—Thom Ridnour, a seasoned commercial real estate professional, has joined CBRE's office agency leasing team. Ridnour will join CBRE as a senior vice president specializing in the marketing and leasing of office projects in the Dallas/Fort Worth region. He will also work across lines of business to leverage the investor relationships he has formed during the course of his career.

DENVER—Coldwell Banker Commercial Advisors (CBC Advisors) Denver office announced that international business leader, Carlos Cain, will join the team as its newest managing director for Denver operations as well as international relationships.

DEAL TRACKER

AUSTIN, TX—Glen Allen Apartments, a 13-unit apartment property located at 2005 Glen Allen St. has sold. J.R. Ellis, an investment specialist in Marcus & Millichap's Austin office, had the exclusive listing to market the property on behalf of the seller, a private investor.  The buyer, a foreign purchasing entity, was also secured by Ellis.

CYPRESS, TX—Stream Realty Partners was awarded the lease of Cabot Properties' 248,144-square-foot rear-load industrial building in Towne Lake Business Park. The 93,051-square-foot vacancy, located at 5111 Frye Rd. in the Upper Great Southwest submarket, is being marketed for lease by Stream's Cannon Green and Luke Davis.

DALLAS—Dalfen America Corp. awarded Matt Dornak, Ryan Wolcott and Corbin Stall with Stream Realty Partners the lease of a 419,626-square-foot industrial building located at 8901 Forney Rd.

DALLAS—STRIVE announced the sale of Chick-fil-A, a 20-year absolute net ground lease property near White Rock Lake. The property is 2017 construction with a strong corporate guarantee and had previously been listed with two other brokerage firms. Jason Vitorino of STRIVE exclusively represented the seller, a local partnership, in the transaction as well as the buyer, an out-of-state 1031 exchange buyer. The transaction was closed all cash in four days from the signing of the contract. Additional terms of the sale were not released.

DENVER—Holliday Fenoglio Fowler LP has closed the $75.25 million sale of Gateway Park Apartments, a 328-unit class-A garden-style multi-housing community. HFF marketed the asset on behalf of the seller, a joint venture between Denver-based Griffis Residential and PCCP LLC.  Jackson Square Properties purchased the asset free and clear of existing financing. Gateway Park Apartments consists of 22 two-story buildings, which house one-, two- and three-bedroom units averaging 896 square feet. The property is situated on 20.98 acres at 4255 Kittredge St.

FORT WORTH—STAG Industrial awarded Stream Realty Partners Fort Worth the lease of 1801 Riverbend West Dr. The 101,500-square-foot stand-alone building is the located in Riverbend West Industrial park in east Fort Worth. Seth Koschak and Forrest Cook with will handle the leasing efforts for Stream.

FORT WORTH—MOE/Moving Office Equipment completed a five-year industrial lease for 8,125 square feet at 2601 Northern Crossing Blvd. The tenant rep was Mac D. Morse with Citadel Partners and the landlord rep was Seth Koschak & Forrest Cook with Stream Realty Partners.

GREENWOOD VILLAGE, CO—CBRE completed the sale of a 91,000-square-foot building for $10.8 million. Monica Wiley and Dave Buck with CBRE's Denver office repped the seller.

LAS COLINAS, TX—College Football Playoff has signed a lease extension through 2024 at The Summit at Las Colinas. The property is owned and operated by Gemini Rosemont Commercial Real Estate Company.

LEWISVILLE, TX—STRIVE recently announced the sale of Xplor Preschool, a long-term absolute NNN lease property located in this Dallas suburb. The property is conveniently located within 1.5 miles of two elementary schools, one middle school and is part of the Nobel Learning Communities, a network of more than 200 private schools across the country. Anthony Pucciarello of STRIVE exclusively represented the seller in the transaction, a Texas partnership, and the buyer, an out-of-state investor. Additional terms of the sale were not released.

TOMBALL, TX—Enertech Resources signed a new 29,350-square-foot industrial lease at 24431 Hufsmith-Kohrville Rd. in this Houston suburb. Kevin Erck and John Talhelm of JLL represented the landlord, Maverick Assoc., in the transaction. Webb Melder of Melder Real Estate represented the tenant.

WOODVILLE, TX—STRIVE recently announced the sale of Tractor Supply, a corporate guaranteed 10-year lease property. Tractor Supply is situated along Magnolia Street and is adjacent to a Super Walmart and many other national retailers in the area. Adam Gottschalk of STRIVE exclusively represented the seller in the transaction, a local limited liability company. Within hours of marketing the property, STRIVE was able to generate multiple offers and pick the most logical buyer for the transaction. The buyer, an out-of-state LLC, was represented by an outside broker. Additional terms of the sale were not released.

Demand for office space, underpinned by steady job creation and elevated corporate confidence, has steadily tightened vacancy rates, pushing rent growth into its seventh positive year, according to a report by Marcus & Millichap The maturing cycle has begun to invigorate construction in markets that led the economic growth cycle, potentially creating areas with supply risk. Most markets remain on track toward strengthening fundamentals, but unique local market dynamics are driving more tactical decisions and raising investor caution.

Most markets continue to generate tightening vacancy rates, pushing rent growth. While tenants favored locating sites in the urban core early in the growth cycle, suburban office demand is accelerating. Tightened yields have encouraged investors to broaden acquisition criteria to encompass suburban office as well as secondary and tertiary markets. Two recent office reports focusing on Austin are featured here.—Lisa Brown

BY THE NUMBERS

AUSTIN, TX—The second-quarter office market report by Avison Young shows that demand for office space from large technology tenants relocating to the Austin market remains strong, driving leasing activity and rental rates to new highs, with a 26.5% increase in total sales volume in the last year. Construction deliveries that were slow to come online during the first quarter of 2017 made for a dramatic rebound during the second quarter, with more than 870,000 square feet of office product delivered. Lower-than-average preleasing in new construction is suggestive of developers' confidence in the Austin forecast, considering a relative slowdown in the metro's business cycle index toward the end of the second quarter.

AUSTIN, TX—The second-quarter 2017 Austin office market report from Savills Studley indicates average asking rents continued to surge in second quarter as class-A rents surpassed $40 per square foot for the first time ever, increasing 4.3% in second quarter and up 11.9% year-on-year. Overall Austin region asking rents averaged $35.60 in second quarter compared to the US Index of $33.13. Landlords in most submarkets remain extremely bullish and continue to push rents higher. The effort to increase amenities and improve building infrastructure has also boosted operating expenses in some properties. In downtown's highest tier buildings, operating expenses (including property taxes) are well above $20.00 per square foot. Limited space options for companies in multiple sectors can be linked to a slowdown in sales and leasing activity to start 2017. Like first quarter, second-quarter office sales of $269.3 million trailed the $556.7 million quarterly average for the past five years. Leasing volume in the Austin region ticked up to 1.4 million square feet in the second quarter, improving from 1 million square feet leased in the first quarter, but still below the long term historical average of 1.7 million square feet leased quarterly. After starting the year with the first quarterly increase since 2014, the class-A availability rate dipped by 22 basis points to 14.5% in the second quarter and has fallen by 221 basis points year-on-year. However, the class-A availability rate in the CBD posted a slight 24 basis point quarter-on-quarter increase to 14.8%.

NEWS AND NOTABLES

DALLAS—Thom Ridnour, a seasoned commercial real estate professional, has joined CBRE's office agency leasing team. Ridnour will join CBRE as a senior vice president specializing in the marketing and leasing of office projects in the Dallas/Fort Worth region. He will also work across lines of business to leverage the investor relationships he has formed during the course of his career.

DENVER—Coldwell Banker Commercial Advisors (CBC Advisors) Denver office announced that international business leader, Carlos Cain, will join the team as its newest managing director for Denver operations as well as international relationships.

DEAL TRACKER

AUSTIN, TX—Glen Allen Apartments, a 13-unit apartment property located at 2005 Glen Allen St. has sold. J.R. Ellis, an investment specialist in Marcus & Millichap's Austin office, had the exclusive listing to market the property on behalf of the seller, a private investor.  The buyer, a foreign purchasing entity, was also secured by Ellis.

CYPRESS, TX—Stream Realty Partners was awarded the lease of Cabot Properties' 248,144-square-foot rear-load industrial building in Towne Lake Business Park. The 93,051-square-foot vacancy, located at 5111 Frye Rd. in the Upper Great Southwest submarket, is being marketed for lease by Stream's Cannon Green and Luke Davis.

DALLAS—Dalfen America Corp. awarded Matt Dornak, Ryan Wolcott and Corbin Stall with Stream Realty Partners the lease of a 419,626-square-foot industrial building located at 8901 Forney Rd.

DALLAS—STRIVE announced the sale of Chick-fil-A, a 20-year absolute net ground lease property near White Rock Lake. The property is 2017 construction with a strong corporate guarantee and had previously been listed with two other brokerage firms. Jason Vitorino of STRIVE exclusively represented the seller, a local partnership, in the transaction as well as the buyer, an out-of-state 1031 exchange buyer. The transaction was closed all cash in four days from the signing of the contract. Additional terms of the sale were not released.

DENVER—Holliday Fenoglio Fowler LP has closed the $75.25 million sale of Gateway Park Apartments, a 328-unit class-A garden-style multi-housing community. HFF marketed the asset on behalf of the seller, a joint venture between Denver-based Griffis Residential and PCCP LLC.  Jackson Square Properties purchased the asset free and clear of existing financing. Gateway Park Apartments consists of 22 two-story buildings, which house one-, two- and three-bedroom units averaging 896 square feet. The property is situated on 20.98 acres at 4255 Kittredge St.

FORT WORTH—STAG Industrial awarded Stream Realty Partners Fort Worth the lease of 1801 Riverbend West Dr. The 101,500-square-foot stand-alone building is the located in Riverbend West Industrial park in east Fort Worth. Seth Koschak and Forrest Cook with will handle the leasing efforts for Stream.

FORT WORTH—MOE/Moving Office Equipment completed a five-year industrial lease for 8,125 square feet at 2601 Northern Crossing Blvd. The tenant rep was Mac D. Morse with Citadel Partners and the landlord rep was Seth Koschak & Forrest Cook with Stream Realty Partners.

GREENWOOD VILLAGE, CO—CBRE completed the sale of a 91,000-square-foot building for $10.8 million. Monica Wiley and Dave Buck with CBRE's Denver office repped the seller.

LAS COLINAS, TX—College Football Playoff has signed a lease extension through 2024 at The Summit at Las Colinas. The property is owned and operated by Gemini Rosemont Commercial Real Estate Company.

LEWISVILLE, TX—STRIVE recently announced the sale of Xplor Preschool, a long-term absolute NNN lease property located in this Dallas suburb. The property is conveniently located within 1.5 miles of two elementary schools, one middle school and is part of the Nobel Learning Communities, a network of more than 200 private schools across the country. Anthony Pucciarello of STRIVE exclusively represented the seller in the transaction, a Texas partnership, and the buyer, an out-of-state investor. Additional terms of the sale were not released.

TOMBALL, TX—Enertech Resources signed a new 29,350-square-foot industrial lease at 24431 Hufsmith-Kohrville Rd. in this Houston suburb. Kevin Erck and John Talhelm of JLL represented the landlord, Maverick Assoc., in the transaction. Webb Melder of Melder Real Estate represented the tenant.

WOODVILLE, TX—STRIVE recently announced the sale of Tractor Supply, a corporate guaranteed 10-year lease property. Tractor Supply is situated along Magnolia Street and is adjacent to a Super Walmart and many other national retailers in the area. Adam Gottschalk of STRIVE exclusively represented the seller in the transaction, a local limited liability company. Within hours of marketing the property, STRIVE was able to generate multiple offers and pick the most logical buyer for the transaction. The buyer, an out-of-state LLC, was represented by an outside broker. Additional terms of the sale were not released.