Austin Office Landlord Outlook

In the 2^nd quarter, we finally started witnessing the foreclosure trend we've been anticipating.  Several totally or mostly vacant buildings have been taken back by the banks. Frontera Vista, Aspen Lake, and Ladera Bend, all located in the NW submarket, are now in the bank's hands and Ladera Bend is being marketed for sale. This will represent Austin's first institutional quality "distressed" office sale and may likely set the market price for the value of similar buildings in town.  It's likely we'll see more foreclosures in the second half of the year, especially in the NW submarket, especially if absorption rate continues its negative trend.

Much like the first quarter, the CBD and SW submarkets are fairing better than others and both are trending towards positive absorption. Gone are the really large blocks (100,000 sf +) of contiguous space in these markets due to a number of deals signed at The Palisades, Parkway at Oak Hill, and San Clemente. Both Fulbright & Jaworski, LLP and Cirrus Logic have announced their intentions to kick off development of new buildings near downtown, but official sites haven't been determined.  Both companies would be in the market for 100,000 sf or more in two to three years and right now that amount of space isn't available in that location. With the capital markets still in a state of disarray, the financing will prove challenging however.

While concessions continue to be doled out by landlords in an effort to attract deals to their buildings, we may be hitting the bottom. We expect to see some landlords in the tighter markets pull back on the concessions or hold more firm on rental rates should activity continue to be steady.