Austin Submarkets Show Signs of Weakness

As the Texas state capital, the home of the University of Texas and headquarters for a significant roster of technology companies, notably Dell, Austin sports an office market that blends stability with volatility.A recent report from Commercial Texas, however, paints much more of a “tale of two cities.” Wrote Commercial Texas president Michael Kennedy: “From 2003 to 2006, all of Austin’s markets were on the rise, experiencing increasing absorption and comparable vacancy rates.” In 2007, however, the CBD rose to the top as the place to be for leading companies in Austin, while the other primary submarkets, the Southwest and Northwest/Far Northwest markets, experienced increased vacancy and declining absorption.For example, the vacancy rate for Class A space in the CBD fell from 20.5 percent in 2003 to 14.7 percent in 2008. But in the Southwest, it dropped from 14.8 percent in 2003 to 4.2 percent in 2006, then rose again to 17.4 percent today. The Northwest/Far Northwest market tells a similar story, as vacancy dropped from 27 percent in 2003 to 8.7 percent in 2006 before rising to 20.9 percent.With Austin’s strong job growth from 2003 to 2006 and an abundance of financial sources ready to provide capital, approximately 3 million square feet of office space is now being added to the market. Since the city’s office users absorb about 800,000 square feet of space per year, the report predicts that the sector’s vacancy will rise, and could remain high for an extended period.But Austin is usually a strong generator of employment, and its diverse set of employment drivers will likely stand the Texas city’s office market in good stead over the long haul.