AUSTIN, TX-The city’s Southwest office sector, which consists of 9 million square feet, constantly jockeys with the CBD as the best performing submarket. However, a new 136,075-square-foot lease with ArthroCare Corp. helps it eclipse downtown.
“The Southwest submarket is the healthiest in Austin,” says Jim Ballard with Stream Realty Partners’ local office. “Leasing activity really started to percolate during the fourth quarter 2010 and has increased significantly since then.”
At the end of the first quarter 2011, the Southwest submarket posted a vacancy rate of 15.2%, according to CBRE. For the same period, the CBD recorded a vacancy rate of 16.2% and the overall market had a vacancy rate of 22.3%.
Ballard was involved in the AthroCare deal, which represents the city’s largest office lease transaction since 2007. The company signed a 10-year lease to occupy 7000 West, two class A buildings located in the Southwest submarket and owned by Equity Office Properties. Carl Conden with Commercial Texas represented ArthroCare.
“With the ArthroCare lease, I would estimate that the occupancy rate in the Southwest submarket would increase 150 basis points,” Ballard tells GlobeSt.com. “The deal represents a significant amount of absorption for the submarket.”
Ballard says the Southwest submarket’s strong performance is driven by several factors including its proximity to executive housing and high barriers to entry. “Austin’s infrastructure has not kept up with its growth, and executives like to live close to where they work to minimize the commute," he explains. "Plus, this area of Austin has the most beautiful topography and views.”
The Southwest submarket’s improvement is obvious within Equity Office’s local portfolio, according to Ballard. The investor owns about 430,000 square feet of office space in Austin, all located in the Southwest submarket, and Stream is responsible for leasing the portfolio.
“Equity Office’s portfolio is really a microcosm of what is happening in the Southwest submarket,” Ballard says, adding that the firm is one of the largest owners in the submarket.
Equity Office Properties hired Stream in February 2010 to lease 7000 West, as well as The Setting I, II & III and City View Centre. At the time, the portfolio was 43% occupied. In addition to the ArthroCare lease, Stream has leased another 29,000 square feet at City View Centre, bringing the portfolio’s occupancy to 94%.
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