Austin Office Tenant Outlook

Across the country in 2009, we saw most companies experience financial difficulties, cost cutting and downsizing to recover lost income. On a company’s balance sheet, rent obligations are typically the second largest line item behind payroll. Simply stated, subleasing space helps decrease that number. Quite often in 2009, companies subleased excess office space in an effort to reduce overhead and help stabilize the books. The good news, reducing rent obligations has helped companies stabilize during 2009. Consequently in Q1 2010, we are seeing an overall flattening within the sublease market. Don’t think this means the real estate market is getting better because, as a tenant, you are in luck – it isn’t.

Currently, tenants are in a wonderful position to negotiate a new lease, particularly if their lease is expiring over the next 12 to 18 months. While companies continue to secure sublease space, many of the ones that have utilized the past 12 months of sublease opportunities are well positioned and looking to secure a quality long-term home at below market rates. Depending on location, tenants are getting significant concessions in free rent, higher improvement packages and flexible options within the lease. In most submarkets, Tenants are being offered one-month free rent per year of lease term, coupled with the above mentioned concessions. With the exception of the downtown (CBD) submarket, most markets will continue to experience higher than normal vacancies and lower overall rent costs.

In conclusion, it is a great time to be in Austin, Texas, and specifically, a tenant in the office market. Tenants should work with a tenant-rep Broker to take advantage of the soft market and secure leases that generate long-term benefits for their companies. The next 18 months will be the best time to capitalize on this market.