Austin Commercial Buildings

Austin Commercial Buildings

Summary of Austin’s commercial buildings and activity for 2017 (portions obtained from Co-Star )

Austin is going thru expansions for commercial buildings especially in the Downtown area.  Austin’s downtown commercial building leasing rates are up +30% compared with per-recession lows. Vacancies remain low as well with only approx 25,000SF of space avail for lease south of the Capitol building.  Pre-leasing activity remains strong for commercial buildings most of the new construction buildings deliver leased.  Over 2M square feet has been delivered to the Austin market since 2012.

Sales of Austin commercial buildings have hit highs , as high as $665 per square foot at a 5.9 cap rate. The specific Austin commercial building that sold for these numbers had new construction going for it as well as the average remaining lease terms were about 6 years and were to high credit tenants.Cap rates for commercial property

Unemployment rates in Austin stay Low

Another key factor is the robust population growth and how unemployment in the Austin area , for Q2 it hovered around 3.3% and moving into July of 2017, unemployment went below 3% . Business expansion was up to 5.7% . Key transportation issues and affordability has cropped up in the Austin area as it continues to grow. Vacancy rates have fallen to lows of not seen since the 2nd quarter of 2001.  For new construction moving into the third quarter, the sub-markets that saw the highest delivered new construction were East and Northwest Austin.

Austin Office Market |Q2 2016

Austin Office Market | Q2 2016

Austin’s office market has been up on the upswing since 2012. However,  Austin’s office market is now experiencing negative occupancy. The actual figures are approx -24,000SF of negative occupancy in Q2 2016.  Lease rates have had small changes for the most part in low vacancy sub-markets such as Downtown Austin.

Here is a quick review,  lease rates for offices in Austin did not move much , only up +.9% to $34.65 psf per yr. The largest move was in Class A office space in the downtown area are coming in at an increase at approximately 2.7% to a whopping $47.31 psf per yr. Suburban Class A office lease rates only moved up on average $0.03 cents per sf per yr to $35.74 psf per year.  Current vacancy is coming in overall at 12% which is up from the last quarter by 1% point.

Indicators for Q2 2016

Indicators are as follows:

Vacancy down, Occupancy down, New Construction down , Under Construction down

Offices for Sale Overview Q2 2016

The current trend for Austin offices for sale is showing an increase in sales asking prices of 8% , compared to last years asking prices there is a +31% increase in asking prices, coming in at averages of $237 per square foot.Austin office market Q2 2016

Austin Texas Office Market 2016

Austin Texas Office Market 2016

The following is an overview heading into the 2nd quarter or 2016 for the Austin Texas office market. Overall it looks like Class A spaces are getting bit of correction on lease rates although it is not significant rates have come down approximately $1.00 per sf per yr. Whereas, the Class B office spaces in Austin are having lease rate increases. The reason for this could be the demand for Class B office spaces was a bit higher in Q1 due to tenants wanting a more affordable alternative as opposed to the higher priced Class A office properties in the Austin Texas office market.

There are currently 208 Class A office properties, 407 Class B office properties and 78 Class C office properties in Austin Texas.Austin Office

Austin Texas Sublease Market for Office Space

The current sublease market vacancy rate is coming in at around 1%, with this type of picture it bodes well for Landlords and shows consolidation and difficulties fulfilling lease obligations have gone down dramatically.  Currently there is about 418,000SF of sublease space available in the Austin Texas office market after the first quarter of 2016. There are still value offices available, however the closer you get to downtown Austin the tighter the office market gets as well as North Austin coming in at below 5% vacancy rates.

Finance an Office Condo Purchase

Ways to Finance an Office Condo Purchase ?

Recent changes to the US Small Business Administration (SBA) 504 Loan  Program now provide some special attention to pursue LEED certification to qualify for an SBA 504 loan.

SBA 504 Loan Program Overview

SBA’s 504 program offers loans with low down payments and low, fixed long-term interest rates to borrowers that will benefit the public with job creation and community enhancements.

Can a borrower receive financing on an office condo purchase if they do not meet the job creation criteria set forth by the SBA? Not necessarily. A number of recent changes to the SBA criteria, effective as of January 1,  a borrower may be able to navigate around the requirement for job creation by having a LEED certification in place. A simple a 3rd partyLEED assessment and commitment to LEED certificationnow offers all potential borrowers a way to receive an SBA 504 energy loan without having to meet the job creation requirements.

Summary: What is the Green Option? Office Condo Conference Room

The Code of Regulations states that: “if any of the community development or public policy goals (…) is met, then the applicant is eligible even if it does not meet the job creation or job retention requirements provided the CDC meets its required job opportunity average”.

Hidden within the list of community development and public policy goals are three Green Public Policy Goals. A borrower has to stratify one of the two goals set forth by the SBA which are reducing the borrower’s energy consumption by 10%; or generating at least 10% renewable energy within the office condo that they purchase. This can unlock a borrower’s ability for an increased loan amount of up to $5.5 million. This can also reset the borrower’s lending limit for an office condo purchase.   It is not as simple as it may seem because to have energy consumption savings, the borrower would have to invest in up front on equipment such as solar panels etc to accommodate the qualification to finance an office condo.

A borrower can also utilize this strategy by showing the “use” of green technologies that are in place that are cutting consumption or generating renewable energy as mentioned in the above paragraph.  Several type of commercial real estate that could take advantage of this that have a high energy usage per square foot are a car wash, manufacturing facility or telecom.

Building Commercial Real Estate

What does it take when building commercial real estate?

The following interview continues with Larry Nelson of Nelson Development Company regarding build to suits for commercial real estate.  I this module we are going to review the following attributes:

  • Sub Surface issues
  • Contours of the commercial real estate property (land)
  • Coverage dilemmas
  • Potential environmental concerns
  • Utility availability


Building a commercial real estate property is not an easy task, and there are alot of moving parts. Step 1 is identifying the land in which you want to build upon with your commercial real estate broker. From there, the process gets alot more detailed and potentially complex.  This series is provided as an educational foundation to help buyers identify the various areas of potential concerns, facets and processes required when building commercial real estate property.


Module 2: Interview Regarding Build to Suits  (time 10:45)

Selling an Office Space with Existing Leases

Selling an office space with existing leases

As an owner of an Austin commercial real estate property, the time to sell would be if you cannot renew the existing tenants at the same lease rates or higher leasing rates.  As an example  let’s take a well constructed 5 story Austin office building that is nine years old.  Let’s say  it was built for governmental offices. At the same time of construction the developer purchased the site from the government which had a small beat up office building at about two times its market value. The developer rehabs’ the property and constructed the office building leasing it to the government giving it 100% occupancy.  The new landlord is now getting twice the lease rate for the office building. Now with a little more than one year left, he wants to sell the commercial property.  The issue? The government is not being run by  the same party but now a different party that wants to cut costs and they are choosing not to renew their lease with the owner.

When an owner has a type of commercial real estate that has no measurable future then it may be time to sell. If this property is an income generating property perhaps landlord can make money by holding the property. However, if leasing rates are low and falling and the net income is not keeping pace with inflation or properties in the market place or the investment is declining, this would be the time to consider alternatives to ownership.

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