Texas Office Market Review: Mid-Year 2010

by CoyDavidson on August 7, 2010

“Not in my back yard” Texas giving a boot to the Recession

The state of Texas has by no means been immune to the recessionary economic conditions felt in this country. However, compared to the rest of the United States, the Lone Star state has weathered the storm better than most. Texas cities; Austin, Dallas, Houston and San Antonio claimed four of the ten Forbes’ “Cities Where the Recession is Easing,” and if there is no State giving a better effort to boot the effects of the recession out the door.

Unemployment Rates (June-2010)

A Snapshot of the Major Texas Office Markets

Just like the overall economy, the Texas office market has felt the sting of the longest recession in recent history. However, as the office market begins its slow recovery and steady job growth returns, the office sector of the four major metropolitan areas are well positioned.

There’s something about Texas that makes it the most popular place for business to do its business, as CEO Magazine and CNBC both reported last year. As Brooke Rollins, president of the Texas Public Policy Foundation, says: “Our research shows that the more tax incentives and less regulation you have, and the less likely businesses are to get sued, the more likely it is they’ll want to come and prosper in your state.”

Below is a brief overview of  the four major metro office markets in Texas:

Austin

The Austin economy has been not only a strong performer in Texas, but also claims one of the lowest unemployment rates in the country among major metropolitan areas at 7.4%. The Austin office market is the third largest in the state with 79.8 million square feet of total inventory which ended the quarter with a vacancy rate of 14.8%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 584,000 square feet in the second quarter. The Austin office market has recorded 877,000 square feet of positive absorption over the past 4 quarters. Class A rental rates in the CBD ended the second quarter at $34.47, with suburban Class A properties quoting an average of $26.37.

Dallas-Fort Worth

Dallas-Fort Worth, the state’s largest office market with 303 million square feet of total office inventory ended the second quarter 2010 with a vacancy rate of 18.3%. The suburban office market is vast with total office space inventory in excess of  265 million square feet. The overall vacancy rate was up over the previous quarter, with net absorption totaling a positive 18,000 square feet in the second quarter, a marked improvement over the first quarter where net absorption was (797,000) square feet on the negative side of the ledger. The Dallas-Fort Worth office market has recorded (534,000) square feet of negative absorption over the previous four quarters. The average annual quoted rental rate for Class A office space in the Central Business District is $25.30/SF and $24.80/SF for the suburban market.

Houston

Houston’s 195.8 million square foot office market at midyear posted a slowing of negative indicators, with a stronger performing suburban sector, compared to the Central Business District (CBD). However, the CBD does boast a healthy occupancy rate of 91% and Class A rental rates among the strongest in the United States. Although weak fundamentals prevailed, the year-over-year change in office occupancy citywide was moderate with 16.5% vacancy rate at the end of the second quarter compared to 15.1% in the same quarter last year. Net absorption totaled negative (316,000) square feet in the second quarter as compared to 200,000 square feet of positive absorption in the first quarter of 2010. Houston recorded 335,056 square feet of negative absorption over the previous 12 month period. However, Houston does boast the highest rental rates of the four major Texas markets with quoted Class A office space rents in the CBD averaging $35.90/SF and $27.40/SF in the suburban market.

San Antonio

The San Antonio office market the smallest of the four major Texas markets with 63.3 million square feet of total inventory ended the second quarter of 2010 with a 10.6 % overall vacancy rate. Like Austin, the San Antonio economy has proven to be one of the most recession resistance metropolitan regions in the country with an unemployment rate of 7.7%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 136,000 square feet in the second quarter. The San Antonio office market has recorded 6 straight quarters of positive net absorption, with a previous 12 month total of 1,207,000 square feet. Class A office rents in the CBD average $20.89/SF and $21.28/SF in the suburban market.

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