AUSTIN, TX—Corporate expansions have intensified, elevating job creation, generating demand for office space and sparking a construction boom. In addition to the economic drivers Apple's campus has brought to the market, other major technology firms have made announcements, such as Interactions and Visa. All of the employment announcements have developers bullish; with the 4 million square feet of office space in the metro the highest total on record since at least 2007, says a report by Marcus & Millichap Research Services.
Nathan Smith of Austin Tenant Advisors tells GlobeSt.com: "Job growth is strong, businesses in many industries appear to be thriving, and according to Census data we have over 100 people moving to the Austin metro area every day. What that means is that finding office space to lease in Austin is getting harder and harder."
Indeed, tenant demand is absorbing much of the new space that will become available. In fact, a majority of the nearly 2 million square feet delivered has been spoken for and pre-leasing of buildings slated for completion is also strong. The three largest office buildings that opened during early last year averaged 78% full, says Marcus & Millichap. Strong net absorption is projected to continue this year, tightening vacancy and lifting market rental rates.
Buyer enthusiasm continues to make an impact on the market. Investors are active throughout the quality spectrum, particularly with class-A assets that are coming to market. Many high-net-worth individuals, meanwhile, are seeking value-add deals. Office properties developed in the 1980s and 1990s with an occupancy rate between 70 and 80% will attract plenty of bids. Once acquired, the new owners will lift rents to the market rate as leases roll over. Some of these properties have tenants in place with $20 per square foot annual rents, which can be moved closer to $25 per square foot on new leases. Class-B assets are trading at cap rates in the 7% range and in the 8% span for class-C properties, concludes Marcus & Millichap.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
