Austin Real Estate: Rents, New Construction, & Vacancies Rising

By: Kinan Beck

"Oxford Commercial is reporting that that both the vacancies and the rents for Class A office spaces in the Austin area have been rising. In the previous quarter of 2007, Class A office space vacancies reached their lowest level in nearly 6 years, however in the latest quarter of 2007, vacancies rose. Meanwhile, according to Oxford Commercial, rents for the top-flight office spaces in Austin are at prices not seen since early 2001. During 2007's second quarter, top tier office space rents were an average of $29.52 per square foot (psf). This represents an increase of 23% over a year ago. During the same period, Oxford Commercial reports that vacancies dropped from 15.9% to 11%.

It is not just Class A office spaces that are being affected, either. All types of office spaces are increasing in rent, and have been steadily increasing rents for the past two years. The average rent across all types of office space is $24.68 psf. The average vacancy rate across all types of office spaces is up from the previous quarter's 11.8% to the current 13.6%. However, this still represents a drop from the 17.4% rate seen in the middle of 2006. Current projects and developments are expected to add more than 1.3 million ft.? of various office space this year alone to the Austin area. It's a good thing, especially since the strong job growth in this region of Texas creates more hunger for office space. A Central Texas job growth of 4.1% in May, and the resulting booming economy, has created a real demand for business and offices spaces as new businesses are created and existing companies expand.

Metrostudy, a housing research group, is also reporting that new-home construction is on the rise. During the second quarter of 2007 alone, home builders in the Austin area started work on 4132 new homes. This represents an increase of more than 1100 additional homes over the number that was began in the first quarter of 2007. However, the latest numbers still represent an 8% decline over the number of new homes started in the second quarter of 2006.

The slight drop in the number of new homes begun may be due to the fact that there is a significant drop in the number of new homes being started which are priced below $200,000. In the past year, construction of new homes that are priced in the $400000-$750000 price range increased an astonishing 66%. However, there were far fewer homes under $200,000 being built. It is possible that new, stricter credits regulations from lenders and lenders' unwillingness to lend to poor credit risks may be responsible. After the bottom dropped out of the sub-prime mortgage market, lenders have been more wary of lending to poor credit risks, and this may account for the fewer numbers of low-priced homes being built.

According to Metrostudy, during the second quarter of the year, homebuyers closed on 3818 new properties. This represents a 13% dip from the second quarter of the previous year. However, the yearly closing rate has increased 7% to 16,125 units from the same time last year."

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