With Sublease Glut, Builders Put Down Tools

AUSTIN-The office construction boom is abating, with builders stopping work on several projects around Austin. About 3 million sf of new office space had been scheduled to come to market in 2002. That’s fine when the overall occupancy rate is 97%. But when the sublease market lowers that number to 14.5%, it may time to put on the brakes.

“When you look at the timing of that and when it was planned to come online sometime in March of 2002 we were going to hit 22% to 23% vacancy,” says Mike Buls of Buls/Hodge Consulting, who compiles a sublease report. “The more they shut down, the less of a vacancy issue we’re going to have.”

McShane Corp. is halting work on its Riata Gateway project, a 150,000-sf, three-story building at 12007 Research Blvd., Graydon Laguarta, McShane’s vice president, tells GlobeSt.com. “What we’re calling it is a delayed delivery, based on the amount of sublease space that’s showing up out there within a stone’s throw of our project,” he says. “We felt like bringing it on in the fourth quarter of this year would be not to our advantage.”

Work continues on two other McShane projects, he says, with the goal to spread out delivery of the company’s projects. A 75,000-sf building at Braker Pointe, situated at Braker Lane at MoPac Expressway, should be ready in the fourth quarter and a second Braker Pointe building, four stories with 100,000 sf, should be ready in first quarter 2002. Laguarta says work on Riata could resume in first quarter 2002 and deliver in the second quarter. At the Riata Gateway building, “it will be pretty easy to fire it back up again,” he says. “We can finish it within five months from whenever we decide to pull the trigger and start it up again.”

No leases have been signed for either building, Laguarta says. “We do have proposals that are in negotiation, but no pre-leasing has been done,” he says.

He says the Austin market has been fortunate that the sublease market expanded when occupancy rate was high. “The bad news is that there is some more space out there to compete with and it’s going to take a while to absorb it,” he says. “But we should still be at healthy levels, above 85% by mid next year.