Commercial Texas

Beating the Heat: Austin Market Continues to Cool
By Michael Kennedy, SIOR, President, Commercial Texas

Welcome to a slow, hot summer in Central Texas. Hear that? It's the crickets chirping.

Austin, it's said, is doing better than the national economy. But, the region is showing signs of wear under the strain of the slowing environment and few companies are charging forward with plans to sign leases.

Many companies are being very pragmatic about planning and living with tight quarters, versus executing on any near-term expansion strategies. The reason is simple: businesses are concerned about the economy and are waiting out the market. There are exceptions, but a sense of caution dominates.

Companies that are part of a national organization are being even more cautious than local businesses. But businesses of all types, once on their way to upgraded space and expansion, are drawing back such plans to add a layer of protection.

Activity should increase as the fall nears. For now, the market is staying out of the heat.

Industrial Real Estate: New developments, rocky forecast
By Lee Ellison, Vice President and Dan Meyer, Associate, with Austin-based Commercial Texas’ Industrial and Land Group.

Similar to the office market, industrial real estate in the Greater Austin area is experiencing an influx of space. A million square feet is under construction or recently completed in the southeast market and another one million square feet is under construction or proposed in other submarkets thru out the region, with much of the space coming online in 2008. While absorption remained healthy in 2007, with more than 1.7 million square feet of leased space, two million square feet of new space is poised to have a big impact on the existing 34 million square feet of industrial space in the region. Eighteen months behind the office sector, however, the industrial market has its own set of rules.

A myriad of trends are impacting the industrial market in Central Texas: investor interest in the region, the shake-up at Dell and historically high rental rates that are likely to remain steady.

Dell’s announcement of its Austin plant closing by year’s end eliminating 900 jobs, is already beginning to impact the industrial market in Austin. The Dell-ecosystem, which includes logistics and other services companies in the region, represents a substantial amount of real estate, particularly in the northwest market. Based on Commercial Texas’ initial analysis, upwards of 300,000 square feet, and rising, of industrial space is becoming vacant as a result of the move. The full ramifications of Dell’s move will likely unfold over the next year and the tally of vacant space left in the wake could easily surpass an estimated 500,000 square feet.

It’s likely that the latter half of 2008 and early 2009 may look sluggish for leasing. However, developers have calculated the slowdown and remain optimistic about their long-term investment. Industrial tenants, like office tenants, are hoping for a decline in rental rates, but it’s not likely to happen in the next two quarters. The good news for tenants is, with the influx of space, they will likely begin to see concessions—and the concessions may translate into months of free rent or more tenant improvement dollars.

Businesses Take Less Office Space Nationwide
Landlords Feel Pain As Market Softens; Tenants Gain Edge

Republished from The Wall Street Journal, July 3, 2008; Page A2
By ALEX FRANGOS

Companies are taking less office space across the nation, driving down rents in most markets and causing pain for real-estate landlords. It is also making it easier for businesses to rent space.

Nationwide, rents on office properties -- including landlord concessions and discounts -- rose 0.7% in the second quarter to $25.16 a square foot, the slowest growth since the second quarter of 2005, when the office market was just emerging from a half-decade-long slump, according to Reis Inc., the New York real-estate research firm.

For more on this story: http://online.wsj.com/article/SB121505726814325883.html