BYLINE: Shonda Novak AMERICAN-STATESMAN
STAFF
DATE: January 3, 2007
PUBLICATION: Austin American-Statesman (TX)
EDITION: Final
SECTION: Business
PAGE: B08
Central Texas' office market continued to strengthen in late 2006, pushing
rents and occupancies for premium office space to their highest levels in more
than five years, new figures show.
Job growth is still fueling demand in the Austin area, where the office market
has been rebounding since mid-2004 after massive job losses stemming from the
2001 tech bust.
At
year's end, tenants occupied nearly 90 percent of space in the area's
first-class (Class A) office buildings, compared with about 85 percent in the
year-earlier period, the lowest level since early 2001. That's according to
figures released Tuesday by Oxford Commercial, an Austin-based real
estate brokerage.
Rents
for top-quality space stood at $26.19 per square foot, up 15 percent from late
2005.
Citywide,
occupancy rates for all types of space also reached their highest levels since
early 2001. Tenants filled nearly 88 percent of the region's office space in
late 2005, up from about 84 percent at the end of 2005.
Overall,
rents climbed to an average of $22.43 a square foot, up 10 percent from $20.37
at the end of 2005, Oxford Commercial said.
Downtown
had the highest average rental rate, $26.44. Rents for first-class space
downtown rose to $29.38, a five-year high.
"In
2006 the Austin office market stood out as one of the strongest in the United
States," Oxford Commercial's report said. "New office
construction costs, lower vacancy rates and consistent demand have paved the
way for higher rental rates. In addition, record-breaking sales of office buildings
have forced operating expenses, which include property taxes, to escalate."
In
2006, 17 office buildings of more than 50,000 square feet changed hands in the
Austin area. The highest-profile sale came in August, when Chicago-based Equity
Office Properties Trust paid $188 million for Austin's tallest office building,
the Frost Bank Tower. At $354 a square foot, the sale set a Texas record.
"Bullish
investors are paying big dollars, and they expect rents to increase to justify
their purchase prices," said Ford Alexander, a partner and co-founder of
Oxford Commercial.
By
late 2006, tenants filled about 800,000 more square feet of space than they did
a year earlier. Most of that space is being taken by small- to medium-size
local companies that are growing as opposed to large company expansions into
the market, Alexander said.
But
"there are hints of a couple of larger companies with hundreds of jobs
looking at Austin currently," he said, although he declined to elaborate.
Most
of the leasing activity was in Southwest Austin, where only 6.3 percent of
office space is empty and where the bulk of office construction is taking place.
"We're
at the cusp of shifting more to a landlord's market, certainly in the
southwest," Alexander said. "With minimal vacancy, landlords are
driving prices higher," as are higher overall operating expenses because
of increased taxes.
Two
new office buildings opened in late 2006, adding 167,500 square feet. And
several more buildings, part of about 1.1 million square feet of current office
construction, are set to open in 2007, Oxford reports.
Alexander
said that with the buzz continuing about Austin, which is on numerous lists for
best places to live and do business, and with the region projected to add about
20,000 jobs this year, "2007 looks to be a good year for job growth from
within Austin and for new companies moving into Austin."
snovak@statesman.com;
445-3856