AUSTIN-Charles Heimsath calls it a “precipitous” drop, then adds it probably will get worse before it gets better. He is, of course, referring to the Austin office market, in which occupancy rates and rents are falling. Heimsath, who’s tracked the market since the 1980s, tells that it won’t get as bad as the late 1980s when the occupancy rate hit 60% and many buildings seemed to have the same name: “For Lease.”

In his mid-year Austin Area Office Market Survey, Heimsath, founder and president of Capitol Market Research Inc., pegs the overall office occupancy rate at 84.9% at the end of June, off from 95% in December. The 85% includes the occupancy from direct leases and subleases. By itself, the direct lease occupancy is 92.4%, down from 95.5% in December.

Heimsath’s is one of several reports that will assess the Austin real estate market at mid-2001. NAI/Commercial Industrial Properties is due to release its report soon and Angelou Economic Advisors will issue a revised forecast July 25.

The short-term forecast doesn’t require a crystal ball or algorithms. All one has to do is count the number of companies that have gone out of business or cut jobs and look at the number of buildings under construction nearing delivery.

“We have 2.9 million sf still under construction,” Heimsath says. “And when that’s delivered, not all of it will be occupied, so we’re going to add vacancy to the market. It’s also likely some more tenants will offer their space for sublease.”

Rents, which increased in 2000, are in reverse. “Between June and December last year, we had a 10% increase in rates,” he says. “So if you signed a lease 18 months ago, it’s quite likely that your lease is 20% below what the current market is. As a result, I expect rates to drop pretty steeply over the next few months.”

Heimsath doesn’t expect a replay of the late 1980s. “I think that the financial markets have responded much faster to the curtailed supply of space,” he says. “Which means while we’re declining rapidly, we’ll probably come back much faster.

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