Aug 14
As Office Vacancy Rises, Rents May Drop
The real estate market for professional office space continues to look grim as office vacancy in Austin rose to 16.5 percent during the second quarter of 2008. This is up slightly from the 16 percent vacancy rate reported for the first quarter.
Oxford Commercial, a tenant representative brokerage firm based in Austin, compiled the report and released it on July 1st. The report reveals 37,000 square feet of office space vacant during the period between April and June 2008, fueled in part by the departure of Advanced Micro Devices, Inc., who left for their own brand new 870,000 square foot campus.
Developers have added approximately 300,000 square feet of new office space during the quarter which, combined with lack of interest, has helped to drive up the supply. And landlords are looking at lowering rents as a very last resort to address the vacancies.
Developers are in another quandary. The rising cost of construction and the need to fill space clash with each other as landlords consider more concessions such as higher tenant improvement allowances and even free rent. It’s somewhat easier to lower rents in existing space than the newer construction in light of the higher construction costs.
Purchasing your office still looks better than renting it.
Despite the gloomy picture painted by the report, downtown Austin is seeing a resurgence in interest among professionals, particularly in the central business district. Vacancy dropped from 16.1 percent to 15.5 percent during the first quarter of 2008, a sign that perhaps things are beginning to look up. Once again, Austin defies the national average.