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AUSTIN-What Austin has lost, San Antonio has gained, according to the latest office market reports by Dallas-based Holliday Fenoglio Fowler LP’s research department.

It could be classified as an “apples to oranges” comparison when it comes to the two cities, but their proximity warrants it. In separate Q1 city reports that have just been released, Holliday Fenoglio Fowler predicts the Austin office market will struggle or remain flat until 2003 whereas San Antonio, which has a long-standing back seat to other Texas metropolises, is making moderate strides in line with the national economy. San Antonio, say researchers, will pick up even more in late 2001 or early 2002. It has escaped negative absorption, unlike Austin or even Dallas.

“An expanding economy, combined with a slowdown in speculative office construction and diminishing blocks of available second-generation space bode well for improving market conditions going forward,” the report predicts for San Antonio. Austin’s suburban market, say researchers Ed Frieze and Hannah Wier, will take 18 to 24 months to recover from the crippling blow of excess space, primarily due to record-high sublease counts.

In San Antonio, three of the five submarkets had occupancy rise as of the end of Q1, resulting in an overall 88.1%. That reflects a 1.3 point hike from first quarter 2000. The city’s overall class A occupancy is riding at 92.9% and class B at 87.3%. As the market strengthens, the suburban office hotspots will be in the Loop 1604 corridor in the north central and northwest submarkets. Rent is predicted to grow 3% to 4% this year. At the end of the first quarter, the average asking price had been $17.64 per sf, up 2.6% from first quarter 2000. And an even rosier picture is in the sales department, with at least five closings recorded just in the first quarter in comparison to 16 in all of 2000.

Holliday Fenoglio Fowler’s Austin Q1 accounting is based on a sublease count of two million sf, a number that has long been surpassed. Even at that, overall occupancy is pegged at 91.1%. The suburban class A occupancy is 89.8% and the CBD, 92.8%, a recognized stronghold for the state capital’s office market. The report had seven of the city’s nine submarkets had occupancies of 90% or better, but that was way back at the end of March.

Admittedly, it’s difficult for researchers to keep pace with Austin’s market changes. At the end of Q1, overall rent had risen 18.8% in the past year, coming in at $27.57 per sf at the end of the quarter. The CBD had been the highest, fetching $30.90 per sf. All of that has changed as more and more brokers report concessions are being made at the negotiating table. In the building sales category, Austin had investors’ eyes for nearly a decade. At the end of 2000, the average sales price had been $158 per sf for a CBD structure and $188 per sf for a suburban buy. The researchers’ brightest spot shows Austin is absorbing its staggering sublease space at a rate of about 100,000 sf to 150,000 sf per month.

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