City facing challenges of finding space for potential tenants

The vacancy rate for high-end Round Rock office space has dropped dramatically over the past year, leaving the city searching for private developers and companies willing to fund their own construction.

Late last year, vacancy rates in Round Rock for large office spaces were approaching 50 percent. According to the most recent reporting provided by Austin-area real estate firm Oxford Commercial, the rate is now at 7.76 percent—second lowest of all the Austin-area submarkets and well below the region's overall 14 percent vacancy rate.

"The Emerson deal changed the Round Rock submarket," Oxford Commercial Senior Vice President Kevin Kimbrough said. In 2011, Fortune 500 company Emerson Process Management unveiled plans to relocate from Austin into the previously unoccupied Frontera Vista building.

"Having [Frontera Vista] sit empty was a negative," Mayor Alan McGraw said. "Thousands of people were driving by every day and seeing two big empty office buildings."

While the Emerson relocation in May solved a major occupancy dilemma for the city, the move also resulted in the absorption of nearly all of Round Rock's remaining high-end office space. Major companies interested in relocating to the city are finding there is no immediate space available.

Real estate brokers rate office spaces into categories based on size, amenities, age and available parking. Large corporations traditionally seek out the best available—class A. Class B offices are usually occupied by smaller firms and companies, and class C locations typically represent industrial businesses.

According to Oxford data, Round Rock contains 594,191 square feet of rentable class A office space. Prior to Emerson's relocation, 295,652 square feet of the space sat unoccupied. Following the move, the available space in Round Rock dropped to 46,083 square feet.

"You can look at these [vacancy] numbers as a positive or a negative," Ben White, Round Rock Chamber of Commerce Economic Development Partnership vice president said. "We did have a high vacancy rate. But right now Round Rock would be good for any 'build to suit' construction."

Kimbrough believes the low vacancy rate could spur new development.

"I think a low vacancy rate is a good thing for any city," Kimbrough said. "It will spur new construction—but it will be smart construction."

Open for business

Despite the current limitations in corporate office space, Round Rock remains a player in attracting major companies willing to fund their own construction.

"There is a push by companies right now looking to locate in Round Rock," Kimbrough said. "The advantage Round Rock has over Central Austin is they just have more land."

According to White, companies are becoming aware of the city's business-friendly attitude.

"Round Rock can move very quickly in building buildings," White said. "We have identified the sites that are ready. Our permitting process is very quick. Our inspection team will work around the clock to get buildings built and deadlines met. For class A office space and a class A office user, we would not want to be the holdup."

In the past, the city has offered cash incentives, tax abatements and fee waivers to attract companies to Round Rock. To entice Emerson, Round Rock, Williamson County and the chamber put together $1.75 million worth of incentives.

"Round Rock is unique because it truly is pro-business and pro-growth for the right project," White said. "We are out there recruiting."

But not every company can afford to fund its own construction, and some are seeking more immediate options.

"When we receive inquiries from companies looking to relocate to Central Texas, a fair number of them are looking for offices that are already built," Round Rock Planning and Development Director Peter Wysocki said.

How and where to build

Developments such as La Frontera—those built without a set tenant—are becoming increasingly difficult to fund due to today's banking climate.

"We have a lot of land that is entitled to have office buildings," Wysocki said. "What we are hearing is that with the financial market the way it is ... if there is no end user in sight, it is difficult to find the funding."

According to White, the Development Council is working to identify land for office use, work with developers to conceptualize projects, and finally, secure the funding for construction.

"If the money loosens up a little bit, we get these building built," White said. "Then we can market all over the country."

With the lending market tightening, the easiest option is often to find private funding.

"There is private money out there that could build buildings without having to go through banks," White said. "If we could have a private developer build the buildings—that would be ideal. But more than likely you are going to have someone in the queue—in the pipeline—in order to get something built."

According to Kimbrough, the companies Round Rock is seeking to attract are taking notice, regardless of the available space.

"Most [major] tenants are already looking a year or two out," White said. "The city of Round Rock has done a great job in terms of marketing the school district, the worker base and the willingness of the city to work with companies—that sets Round Rock apart from the competition."