Austin Makes First Positive Office Showing Since 2001

AUSTIN-For the first time since midyear 2001, the Austin office market has rung up positive net absorption, Grubb & Ellis Co.’s research analyst tells GlobeSt.com. It doesn’t mean the city is out of the water and it could be just a brief respite. But, it is the first sign that Austin possibly has sunk as far as it’s going to go or at least is close to the bottom of its down cycle.

To be sure, office market watchers are monitoring the event. Grubb & Ellis’ analyst Shawn Martin is careful to quantify that a 397,926-sf positive net absorption market-wide is tied to Cirrus Logic and the law firm of Vinson & Elkins getting their keys to 305,000 sf at Terrace V and Terrace VII, respectively, in the southwest submarket in the third quarter. Cirrus’ 100% takeover of a 190,000-sf office building in the Midland, TX-based Claydesta project is “all new absorption,” Martin points out. In the move to its new headquarters, Cirrus has made it clear that it is staying put in its other Austin-area facilities.

“It’s still very possible that it could be a momentary glitch,” Martin says, adding that type of anomaly happened in Dallas a few months ago. To Austin’s credit, there remains a “huge amount of optimism,” he says, despite quarter after quarter of negative readings.

Austin’s southwest submarket, due to the Terrace move-ins, pulled ahead by 391,234 sf in Q3. The submarket, though, is carrying a 23.6% vacancy in a 5.8-million-sf inventory.

Austin’s high-tech hub in the northwest submarket remains bleak after adding another 48,615 sf to the market. According to Grubb & Ellis, the 10.1 million sf of office product is 31.9% vacant. In the far northwest, vacancy is 55.3% in an inventory of 509,405 sf. Round Rock’s 1.3 million sf of office space is 32.8% empty.

The Q3′s largest backslide was the south submarket, where another 60,400 sf came on the market. Vacancy, though, is just 10.5% in 3.2 million sf of office space and class A rent is $26.71 per sf, the second highest in the region.

Sublease space continues to be Austin’s major concern, with about 3.4 million sf up for grabs market-wide, according to Grubb & Ellis’ calculations. The bright note is that the number has been retreating each quarter. In Q3, subleases struck 40,000 sf from the open market, Martin says.

Other numbers of interest for market watchers show class A rent’s average is $28.34 per sf in the CBD and $22.82 per sf in the suburbs. On the construction side, the CBD has 619,835 sf rising in comparison to 165,794 sf coming out of the ground in the suburbs. The bottom line has CBD absorption down 153,944 sf for the year, with another 11,650 sf coming to market in the last quarter. The suburbs, down 251,096 sf year to date, tracked to the positive by 409,576 sf in Q3–again, due to the Terrace takeovers. Overall, the market is shouldering a 22.2% vacancy, with more than 8.7 million sf of direct space empty in its 39.3 million sf.