As has been apparent throughout 2001, the increasing amount of sublease space is having a big impact on the market. The 2.4 million sf of vacant sublease space is 44% of the total 5.4 million sf of available space. Tenants are using it to get cheaper space or as a bargaining chip to get better deals for direct-lease space, says Kevin Kimbrough, a Colliers Oxford broker involved in the report.
Building owners, in turn, are adjusting their expectations and reducing their published rental rates, which are a starting point for negotiations. Kimbrough tells GlobeSt.com that building owners who stick to higher-than-market rates are unlikely to even get visits from space-hunting companies. "A lot of landlords are losing looks by tenants because they're just looking at the quoted rent," he says. "If it's higher than 30 other options, they obviously are going to look at the lowest one."
The Far Northwest submarket, burdened by 1.3 million sf of vacant sublease space, has the city's highest vacancy, 33.2%. The overall rental rate dropped to $24.83 per sf at the end of the year from $28.18 per sf at the end of the second quarter. Sublease space accounts for 1.3 million sf (54%) of the submarket's vacant 2.4 million sf. That's up 26% from the end of 2000.
The overall vacancy and rental rates of other submarkets are: CBD, 13.8%, $26.65 per sf; central, 7.7%, $22.31 per sf; north central, 14.5%, $19.95 per sf; northeast, 7.6%, $18.77 per sf; northwest, 17.6%, $22.31 per sf; south central, 12.5%, $16.95 per sf; southeast, 5%, $21.40 per sf; southwest, 15.4%, $25.18 per sf; and suburban, 20.4%, $23.77 per sf.
Austin ended the year with 29.1 million sf of office space, up from 25.8 million in 2000. The Colliers report says another two million sf is to come on line in 2002.
Kimbrough says the numbers look worse than the market really is. He points to a couple of listings he has in the northwest submarket that are getting a lot of activity. In particular, he says the High Flex building, a 96,000-sf building at the Riata development in far northwest Austin. "We've had an extremely high amount of activity through that building in the past quarter," he says. "Most of the tenants have been in the range of 2,000 to 5,000 sf.
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