The city's office market continues to reach new heights in rental rates and occupancy levels to the amazement of researchers, brokers and others in the commercial real estate world. The sector is expected to tighten even more because no major spec buildings are slated to open in the near future.
High demand, a dearth of space and few choice are driving the market. Only 70,00 sf of new space came on line in Austin during the second quarter. Kevin Kimbrough, director of market research at Colliers Oxford Commercial's Austin office, says rental rates will continue to rise throughout the third and fourth quarters "until future supply and tenant demand even out."
Tenants looking to add space in the CBD and suburban markets are planning at least a year in advance, he says. Colliers Oxford estimates that nearly all of the 600,000 sf set to deliver by year's end is already pre-leased.Overall rental rates rose 44 cents to $23.64 per sf, up 6.6% since second quarter 1999, Kimbrough told globest.com.Rates reflect an annual, full-service, rentable per sf, including a $6 to $11.23 expense range, according to Kimbrough.
"This represents the highest gross overall rental rate for the city of Austin," says Kimbrough."The Southwest (Austin) market proved again to be the favorable sector for tenants to relocate." The city's current overall 0.4% vacancy rate set a record in that it fell below 1% for the first time.
Class A rental rates in the Central Business District increased $3.36 or 20.9% since the second quarter of last year while overall rental rates in the CBD rose $1.12 to $25.53 - an increase of 15.3% for the same time period.The Austin market absorbed 284,000 sf in the second quarter, bringing year-to-date absorption to slightly more than 1 million sf. That's about 7,000 sf more than the rate for all of 1998.
"Landlords have become the benefactors of the tight office market and are seizing the opportunities it provides by moving upward on rental rates, being selective with tenants and requiring substantial security," adds Kimbrough.
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