The Changing Market – How do Tenants Benefit
Austin’s commercial real estate market has more closely resembled a Six Flags thrill ride over the last twenty years than a cyclical business market. It has veered from the astronomical highs of the mid-eighties, to the lowest depths of the country’s worst market in the early nineties, back on top by 2000, only to crash shortly thereafter with the tech wreck, and then to climb back up once again. Just when it seems there might be some smooth sailing with a reasonable growth curve, the national economy throws a wrench in the gears. So, how do tenants position themselves to benefit from these changing times? If one is a realist, there is no doubt that, with the national economy sputtering and some submarkets dramatically overbuilt, there are going to be some great opportunities for tenants. During the next 12 months, a stable business plan and good credit will provide tenants the best chance to lock in low rental rates, the lowest that we may see for the next decade.
Nearly 3.2 million square feet of space has been added to Austin suburban areas with very little pre-leasing. In fact, by historical standards there is a three-year supply of new office space product in the suburban market. This will certainly drive rental rates in tenants' favor, as competition heats up for their occupancy. In some submarkets, it’s even worse. The far Northwest submarket has recently added or is completing over 1.4 million square feet of space (almost doubling its previous size) with almost zero pre-leased. In such an overbuilt market, landlords will ultimately get very creative and competitive to attract business.
The important step is balancing real estate decisions that will have long-term financial effects and your business plans, which are ever-evolving in today’s world. The first step in this process is called “programming” and is done with a licensed architect to help anticipate your space needs for the next three to five years. Also, how your company works efficiently and effectively is scrutinized and included in the space planning. With this information, an HPI Corporate Services professional can work with you to determine what strategies can be implemented in order to help cut costs, provide for growth and limit liability. HPI Corporate Services has a proven negotiation process that utilizes our extensive market knowledge to garner the greatest number of concessions (both financial and otherwise), save money and protect tenants’ business options.
If Austin continues its rapid growth, and most agree it will, higher construction costs, higher land costs, and lack of developable sites will ultimately drive prices higher again. This anticipated "Tenants’ Market" phenomenon occurs infrequently and will be short-lived. So, if you have, or anticipate having, commercial real estate needs during the next 12 months, discussing your needs and developing a workable plan with a knowledgeable and professional HPICS Tenant Representative could very possibly lead to substantial long-term savings and great options for your firm.
