TEXAS SNAPSHOT, MARCH 2007

Austin Office Market

Doucet

Austin’s office market experienced a banner year in 2006, with increased absorption, lower vacancy rates, new office construction costs and consistent demand catapulting the marketplace to one of the strongest in the U.S., according to Oxford Commercial’s Fourth Quarter 2006 Office Market Report. According to the report, absorption made a strong comeback across the city with approximately 1.03 million square feet of office space being absorbed in the second half of 2006. “Occupancy rates are increasing,” says Ted Doucet, a specialist in tenant representation with Austin-based Oxford Commercial. “We are tracking 1.2 million square feet of Class A office product under construction and another 6.4 million square feet being planned, with some about to come out of the ground.”

Several new developments are making an impact on Austin’s office market, such as Park on Barton Creek, a two-building office complex situated on a 20-acre tract at the intersection of South MoPac Expressway and Loop 360; Research Park Place, a more than 250,000-square-foot development near U.S. Highway 183 and Oak Knoll Drive in Northwest Austin; and San Clemente Building 1, located in the Davenport Ranch development in West Austin on Capital of Texas Highway and Westlake Drive. “These new office buildings give tenants more options when locating office space, especially when large blocks of space are needed,” Doucet says.

The majority of development is taking place in Austin’s Southwest submarket, due to high occupancy rates (95 percent for Class A) and high rental rates ($26.89 full-service for Class A), Doucet says. The Southwest submarket, according to Oxford Commercial’s report, experienced the greatest amount of absorption in the fourth quarter of 2006 with 146,977 square feet and is the submarket with the largest amount of office space under construction. The submarket also quoted the highest average rental rate among the suburban submarkets with an increase of $0.98 from the previous quarter to $25.14.

The range for Class A rental rates in Austin are approximately $20 per foot to $40 per foot, depending on the area of town. According to Oxford Commercial’s report, the average rental rate increased by 10 percent citywide during 2006 to $22.43 per foot, and the average Class A rental rate skyrocketed more than 17 percent to $26.44 per foot, marking an increase of nearly $4 a square foot from the fourth quarter of 2005. “Increasing interest in Austin as a place to live and work has resulted in decreased vacancy rates citywide and rental rates have raised as a response to shrinking supply,” Doucet says.

Vacancy rates for Austin’s office market currently range from 4.3 percent to 15.9 percent, Doucet says. In the fourth quarter of 2006, the vacancy rate for all classes reached 12.5 percent, down 3.3 percentage points from the end of 2005, according to the report, which attributes the slight increase due mostly in part to San Clemente and 7500 Rialto II being delivered at approximately 50 percent occupancy.

In the near future, keep an eye on the Southwest, Northwest and Far Northwest submarkets, as well as the central business district. “These areas seem to be on the target list for firms looking to locate office space,” Doucet says. “If we continue to see absorption in the hundreds of thousands per quarter, competition for quality product will drastically increase.”

— Ted Doucet specializes in tenant representation for Austin-based Oxford Commercial.


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