Forecast: Austin Real estate boom to continue in 2007

From today’s Austin Business Journal email newsletter. The report doesn’t contain info about residential sales and is focued on the commercial side. But as commercial goes so does residential. The new jobs filling the commercial space are the same people moving into Austin and buying homes.

Source: Austin Business Journal
With rents and occupancy rising across different product types and economic indicators pointing toward further population and job growth in Austin, local commercial real estate professionals say the industry’s high times are likely to continue into next year.

The Institute of Real Estate Management sponsored its annual forecasting forum today at the Hyatt Regency on Town Lake. A panel of experts from different sectors offered their assessment of the market and their predictions for 2007.

Office The Austin office market has absorbed about 1.7 million square feet of space in the first three quarters of 2006, according to data from CoStar Realty Information Inc. By comparison, the market absorbed only 1.1 million square feet in all of 2005.

“As the local economy has picked up, so too has the office market,” says Diana Holford, principal with the Staubach Co. Leading the way is the Southwest submarket, which has fallen below 8 percent vacancy. It’s followed by the Northwest submarket, where several companies have announced new development projects to meet rising demand.

But Holford says companies today are more conservative in the amount of space that they lease than they were during the last boom.

“They’re almost Draconian in their approach,” she says. “They still have the scars from taking more space than they needed.”

Holford says tenants are also less concerned about extra amenities associated with their space, often referred to as bells and whistles.

“They’re really trying to make the most out of what they’ve got,” she says.

Andy Smith, managing director over the Austin office of Equity Office Properties, says his company is busy making deals with expanding firms and even a few that are relocating. Smith says that with growth among companies from advertising to finance, this office market recovery is much broader based than the last. Equity Office is Austin’s largest office landlord.

The local apartment market has absorbed more than 1,800 units so far this year, according to Austin Investor Interests. Occupancy rose less than one percentage point in the last 12 months to 93.8 percent, while rents are up to 90 cents a square foot from 85 cents at this time in 2005.

Increasing home prices and rising interest rates are likely to keep rental demand high, says Diana Zuniga, president of Investors Alliance Inc. Zuniga says she expects that occupancy and rents will continue to rise in 2007 to 95 percent and 92 cents a square foot, respectively.

And as demand grows, concessions among apartment communities are all but gone, Zuniga says. About 6,800 units are currently under construction and are expected for delivery in the next 18 months, she says.

With regard to the local condominium boom, Zuniga, who is behind the Spring condo project in downtown, says the demand is there. “At least for the next four to five years, I expect the new product will be absorbed,” she says.

But one problem could come into play on the construction side. Zuniga says contractors are so busy with the area’s many developments, it’s hard to find a company willing to take on a major project. Meanwhile, construction costs have skyrocketed 30 percent in the last year.

On the retail front, figures from Schlosser Development forecast a total of 2.2 million square feet will be absorbed by year-end, bringing occupancy up to 92.5 percent. In 2007, Schlosser anticipates another 2 million square feet will be absorbed with overall occupancy declining slightly to 92.3 percent as a number of sizeable projects like The Domain come online. Still, rental rates in 2007 are likely to tick upward more than 50 cents to $19.72.

Brad Schlosser, president of Schlosser Development, says developers are still looking for strong pre-commitments among retailers before beginning construction on major projects.

The local industrial market is expected to absorb 1.5 million square feet of industrial space across various product types in 2006, according to a report from Torto Wheaton Research. Occupancy is likely to increase slightly to 87.5 percent by year-end from its current 86.7 percent.

Greg Marberry, vice president in the Austin office of CB Richard Ellis, says new roadways opening up around the Austin area will present new opportunities for industrial space. That’s important, he says, as other sites near the central core traditionally earmarked for industrial use are being taken up by other uses from retail to office.

2 thoughts on “Forecast: Austin Real estate boom to continue in 2007”

  1. I’m a first-time homebuyer and I’m currently looking at purchasing a house in Highpointe in the Dripping Springs area. I like the area and I don’t mind the commute to downtown Austin, either. My question is, is it a good time to buy a new home in this area at this point? The homes are tad pricey (I like them though), but I’m worried if I may be paying too much. I noticed all the new development in the area and I’m concerned about the future appreciation of the house I’m looking at purchasing. I see new communities popping up such as Ledgestone and Belterra’s new section. Highpointe still has a large number of lots available and I heard a new community is opening up near Drippings Springs (Headwater at Barton Creek?). Also, could I use this fact in my negotiations if I decide to purchase a new home (get the builder to pay closing costs, etc)?

    John M.

  2. Hi John,

    It’s hard to answer your question without knowing how long you plan to remain in the home. If you plan to stay for at least 3 to 5 years, buying is probably a good idea provided you pick the right floorplan, lot location, etc. If you plan to stay for less than 2 years, you’re probably better off renting. Contact me direct if you want to discuss in more detail. I’ll send you an email.


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