Posted: Sun, 28 Aug 2011 08:18 AM - 14,079 Readers
By: Amy Deis
Commercial real estate insiders are noting signs of a stronger market as occupancy rates climb and companies sign leases for larger blocks of office space.
"We’ve seen more activity in Northwest Austin than any other submarket due to so much vacancy,” said Richard Paddock, an office specialist with Austin-based HPI Real Estate Services and Investments.
Office Depot is in negotiations to move into the Amber Oaks office park on the corner of RM 620 and Parmer Lane; The Advisory Board Company will be relocating to the Riata Corporate Park from a smaller office on Great Hills Trail; and video game publisher Electronic Arts is taking over a portion of the former Freescale Semiconductor building at Parmer Lane and Anderson Mill Road.
For the past 18 months, the Far Northwest Austin region, defined by Austin-based real estate firm Oxford Commercial as the area between Capital of Texas Hwy., Burnet Road, the Round Rock city limits and Lake Austin, has held the highest commercial real estate vacancy rate in the Austin area, peaking at 27 percent two years ago compared with Austin’s overall vacancy rate of 21 percent.
One of the main contributors to the area’s high vacancy rate are new buildings, such as the 205,000-square-foot Aspen Lake office building at Lake Creek Parkway and US 183, that have remained vacant since being constructed.
But now the area is seeing an uptick in rental rates, one sign that vacancy is on the decline, said Garrett Meeker, research director for Oxford Commercial.
In times of high vacancy, Meeker said rental rates plummet because of lack of demand. When rates start increasing, it indicates that landlords and property owners have noticed demand is on the rise.
“Maybe landlords are getting deals we’re not seeing,” he said. “They feel their product is worth more.”
Ebb and flow
Northwest Austin’s vacancy woes began when the market was flooded with nearly 2 million square feet of new office space from late 2007 to early 2009 in the Far Northwest Austin region. When the market tanked, Meeker said almost all new office buildings remained vacant.
Many of these buildings are in the 78726 and 78750 ZIP codes near the RM 620 and US 183 corridors. Those ZIP codes still saw vacancy rates in the second quarter of about 26 percent and 40 percent, respectively. The vacancy rate in the Far Northwest Austin territory dropped below 23 percent, compared with Austin’s overall rate of 19 percent.
Nate Stricklen, vice president with commercial real estate firm CB Richard Ellis, said office buildings with larger square footage are more attractive to technology companies and those relocating from the West Coast.
Vacancy rates peaked in 2009 and into 2010, but in the first six months of 2011, about 262,000 square feet of office space was filled in the Far Northwest territory. About 77,000 square feet of that was at Ladera Bend, a mixed-use development at 7700 FM 2222 completed in 2007.
HPI bought the commercial portion of Ladera Bend from Wells Fargo in December 2010 and began leasing shortly after. Three technology companies moved in: All Web Leads, Spiceworks and Samsung Austin Research Center. Paddock, who oversees leasing at Ladera Bend, attributes the new leases to the tech-heavy corridor of Capital of Texas Hwy. and FM 2222.
As more companies, especially from California, relocate and expand in Austin, Paddock said Northwest Austin would continue to draw commercial leases, in part because it is a more economical solution compared with rental rates in the Central Business District and Southwest Austin.
“The largest blocks of space are available in the northwest part. For large users, for sure it’s going to be the continued option,” Paddock said.
While the Far Northwest region has had roller coaster–like vacancy rates, those in the North Central territory, which Oxford defines as bounded by I-35, Burnet Road and 45th Street, has had minimal change in occupancy because of its stronger industrial presence and smaller offices, Meeker said. The Northwest territory of Capital of Texas Hwy., US 183, Burnet Road and 35th Street has also had a more stable vacancy rate in the upper teens.
Tracking market progress
Meeker said market data is a constantly changing puzzle. Oxford starts compiling information for quarterly reports during the last month of each quarter. Staff call every listing agent for commercial real estate buildings—not including retail or medical facilities—that are multi-tenant and have more than 10,000 square feet of space to see how much space is available and what is the going rental rate per square foot. Owner-occupied buildings are not included.
Data on companies moving in and out is only collected once those companies physically move into or out of the space because leases can fall through, Meeker said.
