4 Million Square Feet

That's how much new office space was under construction at the end of 2007 in the Austin market. That's a lot of space. Do you have any guess how much of that space has been preleased?


29%


Going back to my post on Wednesday, owners of these shiny new Class A office buildings are a little on edge. They need to get their buildings leased to pay off those loans they locked in at rates higher than today (thanks to the Federal Reserve). How do you do that? How do you differentiate your product from the other 2.8 Million Square Feet of brand spanking new Class A space in Austin? Offer better incentives!

As one broker told me the other day, 30 is the new 20 and 40 is the new 30. They were referring to commercial finish-out allowances offered to new tenants. Landlords will give you $30 to $40 per square foot. Landlords will give some tenants 3, 6, or even 10 months of free rent on the right deal. That's right FREE RENT. If you ask me, free is a pretty good price.

What Does this Mean?

In my personal opinion, Austin is becoming a little overbuilt. When this supply floods the market, the incentives will only grow. Although rates may not come down, they will surely decrease their insanely steep climb upward. Vacancy rates will increase due to the shear volume of supply coming online.

The Upside

Buildings that are Class B or C may become more in demand, as there will be a relative shortage of these types of spaces. You may even see an uptick in these rates. Tenants will be able to get some really great rates and incentives, which may grease the wheels of capitalism and make it easier to get deals done for brokers.

We ALL Need an Education

Many tenants are not aware that they can get such great incentives. You can get free rent. You can get tenant improvements paid for by the landlord. You can get options for renewals or early-exits from the contract. You can get lower rates. Therein lies the benefit of using a commercial broker. The broker knows what to ask for. The broker can use what other people in the market have to offer as leverage when making an offer on a space. The expertise is invaluable, you just have to be able to communicate that to the client(s).