AUSTIN-Increased demand for office space and slowly sliding vacancies are spurring the start of construction in the capitol city. Despite the highly publicized credit market downturn, experts are convinced that there is enough demand to meet what’s poised to come on line.

In Grubb & Ellis Co.’s second-quarter report, local researchers calculate that there is 2.45 million sf of speculative development under way. Marcus & Millichap Real Estate Investment Services’ local team suggests the same thing, recording 800,000 sf of office space being delivered to market by midyear and 2.5 million sf more under construction.

The Marcus & Millichap report notes that rents are pushing up to $23.21 per sf, while vacancies are hovering 13.2%. The Grubb & Ellis report places vacancy at 11.5% in the 39.2-million-sf inventory, with rents topping out at $25.88 per sf.

Ernest Brown IV, Grubb & Ellis’ managing director for Central Texas, says inquiries from outsiders for space in the Austin metro keeps growing every month. Additionally, the city is home to University of Texas and the state capitol. The final foundation block for the increased demand is the area has finally shaken free of the dot-com bust, meaning available space is once again being quickly absorbed.

“2.4 million sf might seem like a lot of space under construction. But when the dot-com bubble burst, Austin had six million sf of space coming vacant,” Brown points out. “We’ve finally come out of that.”

Brad Bailey, Marcus & Millichap’s regional manager for Austin and San Antonio agrees that the trend has reversed from previous years of stifled job demand and city overseers keeping construction at bay. “A lot of what’s going up now had been in the works and on the drawing boards for a long time,” he explains. “The city decided 18 to 24 months ago that it made sense to pull the trigger and start construction to add more space.”

Both men believe the global credit crunch won’t have an impact on what’s coming out of the ground and most likely just a minimal impact on projects that are on the drawing boards. But, Bailey concludes, “you probably won’t see as much spec building in Austin or surrounding markets.”

Brown believes that given Austin’s current rate of growth, the credit crunch could provide some minor breaks, but nothing on the scale of what it went through in the early 2000s. “A little temperance won’t hurt us in the long run,” he says. “It’ll ultimately give us more staying power.”

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