That's one of the lessons from the Colliers International office market status report for the third quarter. The citywide vacancy rate hit 23.9 %, up from 18.8% at the beginning of the year. Average rent dropped to $23.50 per sf from $24.59 per sf nine months ago.
"It's a great time for tenants who've been in lesser space to look at moving up to nicer space just because there are just great opportunities there," says Rick Whiteley, a Colliers broker who helped compile the report. "It's a time for people in lesser buildings to bargain really hard with their existing landlords just because they can go elsewhere for the same or less money."
Whiteley tells GlobeSt.com that more and more tenants with a year or so left on their leases will approach building owners to renegotiate leases. "With a year out, I think a lot of landlords and tenants will step up and make the commitment now. The landlords will have to drop the existing rate or blend them with today's rate to lower their overhead currently," he says.
It can be a good time for those looking for class A office space. Colliers reports that 6.1 million sf of Austin's top-grade office space is empty. That's more than two-thirds of the city's total of 8.7 million sf of vacant space.
That's a historical high number because Austin just hasn't had a lot of class A space in the past. But most of the office buildings constructed in recent years have been class A. And, Whiteley says, that's where a lot of the sublease space is. Many of the large blocks of sublease space from companies such as Janus, Schwab and Dell are situated in class A buildings.
The big increase in vacant class A space came in the CBD. Tenants left 292,913 sf in the CBD from the second quarter to the third, according to Colliers' figures. The class A vacancy rate in the CBD is 27.5%, up from 20.7% in the second quarter. Rents dropped to an average of $25.34 per sf from $28.37 per sf.
Whiteley says demand for space remains anemic, with most deals moving a tenant from one building to another. There are a couple of lights in the distance, however. A biotech firm reportedly is looking for space in Austin and a downtown building may have a net absorption deal in the works.
Vacancy rates probably will continue to rise and rents will keep dropping, Whiteley says. "The wild card is business failures," he says. "Having those people out there who've been able to hang on for the last year, last year and a half, but then don't receive additional funding. Do we see that space come back to the market?
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