Austin's Sublease Takes New Twist

AUSTIN-A new philosophy is beginning to emerge among Austin’s high-tech users as sublease space continues to hover between 3.5 million sf and 3.6 million sf.

Large Fortune 500 companies can now feel confident about signing long-term leases in the Austin market, Michael Buls of Austin’s Buls Hodge Consulting tells GlobeSt.com. He says companies are mixing discounted rates available on long-term leases with sublease opportunities to achieve “a better blended rate” on the overall package.

“Lower rates acting as incentives have brought savvy businesses to the conclusion that they should try to sublease excess space and cut long-term deals,” Buls says. “We recently worked with a 5,000-sf tenant to sublease their remaining two-year term in exchange for a five-year deal on 2,000 sf.” According to Buls, average citywide rent rates are $21.45 per sf for class A; $18.33 per sf for class B; and $15.89 per sf for class C.

Buls says a “whole new tier of sublease” has surfaced as a result. He expects it will keep sublease numbers high in the Austin market, but sees it as an answer to the difficulties that real estate has had in matching the product cycle requirements of the high-tech industry. It’s not easy. he stresses, to marry the average product cycle time of three months for high-tech companies to average lease terms of three to five years.

Even with the sublease trend now being looked upon as an option, the Austin market still doesn’t have nearly enough users to absorb all of the space that companies could potentially put on the market. Buls says it takes about a year to find a sublessee for 10,000 sf or less. And like others, he says the large amount of sublease space is here to stay until the high-tech market rebounds.