Austin Office Conditions Could Slow Development

[IMGCAP(1)]AUSTIN-Local market watchers say slow absorption and more space coming on line crept into the market late last year and predict the trend will continue throughout 2008. However, they do believe that developers will curb their appetites to build until more space is absorbed.

“We’ve seen a lot of space coming on line in the past several months,” says Ryan Kasten, a tenant services broker with Austin-based Oxford Commercial, an alliance of Cushman & Wakefield of Texas Inc. “There hasn’t been that great a demand in 2007 although building owners say they’re still seeing a lot of activity.”

Cushman & Wakefield’s fourth quarter 2007 office report echoes Kasten’s comments, showing overall vacancy of 14.4% in the 38.4-million-sf inventory. Slightly more than three million sf is still under construction.

In Grubb & Ellis Co.’s Q4 report, researchers found a similar trend, with vacancy at 10.9% vacancy in their 39.7-million-sf coverage area. Its team says there is 3.6 million sf under construction.

Despite the pipeline and the double-digit upward-shifting vacancy, Kasten and Brent Powdrill, Oxford Commercial’s research director, hesitate to slap the “overbuilding” term on the market. Office space anticipated for delivery can’t be dubbed “excess” until it’s sat vacant for awhile, both men note.

[IMGCAP(2)]Powdrill says it might seem that more space is going up than is being absorbed, but the long-term picture tells different story, especially when fundamentals are taken into consideration. “Compared to 2006, we had low absorption for 2007,” he acknowledges. “But, all of the forecasts and reports suggest that Austin has a healthy future and developers are building based on that.”

But, Kasten tells GlobeSt.com that there won’t be nearly as many projects under construction for the remainder of this year–until the empty space is absorbed. “Until we start seeing major demand on current projects under construction, developers won’t break ground on any more,” he predicts.

Powdrill agrees. He points out that much of the space currently going vertical doesn’t have much preleasing. “With 2.5 million sf under construction and only 300,000 of that preleased, I don’t think developers will really see the benefit of building more right now,” he concludes.