Sublease Space Rising, But Northwest No Longer Primary Culprit

AUSTIN-The economic slowdown’s ripples in Austin can almost be viewed geographically.

Consider this: The first economic shocks rumbled through the scores of Austin dot-com companies holed up in the city’s northwest submarket. As they cut back or shut down, hundreds of thousands of square feet of sublease space opened up in the northwest submarket. For a while, the northwest accounted for more than 60% of the city’s sublease space.

Now, the amount of northwest sublease space has leveled off and receded to 49.3% of the city’s sublease total, according to the Buls-Hodge report. The economic reverberations, however, are bouncing through the city’s other submarkets, where the dot-com concentration wasn’t as high as in the northwest. Those sectors are adding open sublease at a faster rate than they have been and their total has surpassed the northwest’s total. “These aren’t dot-coms that are causing this increase,” says Mike Buls of Buls-Hodge Consulting, who compiles the report. “These are different types of technology, software firms other high-tech firms.”

The sublease total stands at 3.242 million sf, the highest since Buls began the report in February. The citywide vacancy rate, including direct and sublease space, is 21.4%, according to Buls. “I’m kind of stunned that it keeps going up,” he says. Market stabilization will be reflected when trend lines for other submarkets flatten out as the northwest submarket has, he says.

The report counts space reported to Buls by brokers and space that may not be vacant currently, but is on the market because tenants plan to move in coming months. More than 293,000 sf of sublease space and 137,000 of direct lease space were added to the report in the last two weeks.