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AUSTIN-In January, about 1.1 million sf or one-third of Austin’s office sublease space will have an average shelf life of two years. The “aged” space has brought a return of “expenses only” deal making for the first time since the real estate bust of the late 1980s, says the city’s acknowledged sublease watcher.

Austin’s scenario is much the same as elsewhere as commercial real estate forecasters start prepping the industry for large quantities of space returns to building owners. Admittedly, there will be fewer competitors courting tenants when building owners get control of their space, particularly as the pendulum swings in the Austin CBD. The downside is the Austin market is rubbing shoulders with an “expenses only” margin for the finished deal due to a space glut and ongoing fierce battle to win the tenant, says Mike Buls of Buls Hodge Consulting of Austin. “The tendency in this market is to go for a turnkey deal.”

Eighty-two leases account for the 1.1 million sf. To make matters worse, 43 of those leases or 748,000 sf have less than a year to go before they expire, Buls tells GlobeSt.com. In comparison, the average term citywide for direct and sublease is 58.4 months.

Every strategy from hefty discounts to buyouts will be tossed onto the table to move the office space. For those chasing buyouts, it won’t be cheap, Buls predicts.

Austin will start 2003 much like it did this year, with about 3.4 million sf of available sublease space even though 750,000 sf was leased throughout the year. “Next year,” Buls says, “is going to be a pretty rough year.”

A year ago, the net effective rate was $22 per sf to $26 per sf citywide. This year, it’s $18 per sf to $22 per sf gross for high-quality sublease and direct space, according to Buls. Those kind of rates have tenants at bargaining tables to lock in the lowest rate possible for the next five to 10 years. But, the uncertainty of the times is keeping the bargaining to renewals or small expansions with options.

Buls, citing other area economists, says the only segment projected to add jobs is state government. Still, most of the office space demand was locked in several months ago or won’t be coming to fruition until second quarter or later. “There will be three to four months of little to no activity on leases,” he forecasts.

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