AUSTIN, TX - While Austin's economy continues to fare better than that of other U.S. cities, 2009 will be a challenging year for commercial real estate, according to a global forecast released Monday by Grubb and Ellis Co. Nationally, the economy will continue to struggle in 2009, dampening demand for all product types and resulting in negative absorption and increased vacancy, said Robert Bach, senior vice president and chief economist of Grubb and Ellis.
In the Austin area, the economy is bolstered by state, local and federal government agencies that employ more than 150,000, the report said. At the same time, the area's unemployment rate has still risen to its highest level since 2003, and that job picture may spell a tough time for the Central Texas commercial real estate market, the report said. "Strong population growth and steady economic performance is crucial in positioning Austin to benefit from the pending recovery," said Ernest Brown, managing director of Grubb and Ellis' Central Texas offices. Office tenants will have greater negotiating leverage in 2009 in the Austin area, the report predicts.
"With more than 8.4 million square feet of vacant space citywide, tenants should be more selective in their search criteria," said Brown. "Stable firms should look to renew their leases with five to seven-year terms as landlords will become increasingly willing to offer lower effective rates and more favorable concessions."
The report still recommends that office investors looking to buy property keep Austin in mind - the city ranks fifth on a top-10 forecast list for office market strength through 2013 compiled by Grubb and Ellis' Investment Opportunity Monitor. Demand for industrial space may be slightly healthier for the new year, the report said.
Industrial space absorbed in Austin in 2008 was at its lowest annual total since 2005, but net absorption did remain positive overall. Absorption is expected to stay flat in 2009 as tenants remain cautious amid a declining economy. "Austin still benefits from a vibrant high-tech community and strong population growth," said Brown. "However, local economic indicators must improve before a drastic improvement in the market will be seen."
In the retail sector, Brown said retail vacancy will likely crawl upward in 2009 and rates among neighborhood and community shopping centers could reach 11 percent, up from 10 percent at year end 2008. In the coming years, however, rapid population growth will continue to drive demand for all varieties of retail products. Landlords would do best to pursue regional and national tenants with easy access to capital and financing, Brown said.
Austin ranked 8 on a top-10 forecast list for retail market strength through 2013, according to Grubb and Ellis' Monitor. Nationally, the report said that grocery store-anchored centers in mature trade areas will hold their ground in 2009, while centers on the urban fringe, where housing construction has stalled will suffer. Retailers will be even more conservative with their expansion plans in 2009, with more store closings and fewer openings.
In multifamily housing, vacancies will also rise for Central Texas in 2009, according to the report. But, leasing velocity has remained strong among downtown Class A rental properties. Given current conditions, well capitalized investors have the opportunity to make a big splash in the Austin market, the report concludes.
Source: Austin Business Journal