Eager companies find few local vacancies

Proximity to downtown, cost keep commercial market in high demand

Large lots of vacant commercial space are hard to come by in Southwest Austin, and local real estate experts said when such sites do open up, they attract attention from sizable employers looking to relocate, expand or launch their business.

About 100,000 square feet of space at the Lone Star Campus, formerly owned by Advanced Micro Devices Inc., is about to come on the market, according to John Gump, vice president at real estate firm CBRE Inc., which has an office in downtown Austin.

"It's going to bode well for expansion opportunities for local companies here," said Dave Porter, Austin Chamber of Commerce senior vice president of economic development.

AMD sold the 812,350-square-foot Lone Star Campus at 7171 Southwest Parkway in March to 7171 Southwest Parkway Holdings, LP, an affiliate of Spear Street Capital.

AMD is leasing about half of the space for 12 years from its new owners. It will initially occupy the entire campus but will reduce its size to 470,575 square feet by the end of 2014, Gump said.

In June, SolarWinds Inc. said it plans to set up headquarters in the building in 2014, taking up about 230,000 square feet.

When companies moving to Austin decide against putting down roots downtown, typically the first place they look is Southwest Austin, Gump said. Cost is a major factor, as downtown real estate prices are often higher than those in suburbs including Southwest Austin, he said.

The area around Southwest Parkway will likely see increased interest and development if another large employer occupies the remaining Lone Star Campus space, said Nate Stricklen, CBRE first vice president of brokerage services. The space is divided into two floors taking up about 50,000 square feet of space each.

"I would think it's probably [going to be] one large company or two reasonably sized companies," he said.

Another site with available space is the Overwatch building on Southwest Parkway, represented by Kevin Granger, partner with the Dallas-based firm Peloton Commercial Real Estate. He said Overwatch Textron Systems, an intelligence and geospatial analysis company, is leasing the 164,000-square-foot space and subleased about 25,000 square feet of it earlier this year. Peloton is still looking for a tenant to sublease the 21,000-square-foot fourth floor.

Granger said many business decision-makers live in Southwest Austin and prefer to operate their businesses close to home.

Tiffany Nels, SolarWinds' vice president, corporate marketing, said Austin's tech-savvy talent pool enabled SolarWinds' business to expand.

"Southwest Austin offers a wide range of office properties and complexes, which gives us the flexibility to choose the right office locations as we have grown," she said.

SolarWinds relocated from Utah in 2006 to its South MoPac campus and now employs more than 450 people in Austin.

The Lone Star Campus is one of the few large vacant commercial spaces south of Lady Bird Lake and west of MoPac, the area CBRE defines as Southwest Austin, Gump said.

Overall, the Southwest Austin market is tight, said Mark Sprague, state director of information capital at Independence Title.

"There is just a tremendous demand and limited supply [for commercial space], which means the market will continue to see values [go] up," he said. "Everybody wants to be in Southwest Austin. All of Southwest, starting basically at the river, is extremely strong—both resale and commercial. It's as tight a market as I've seen definitely in 10 years, but I'd say probably in 20 years."

Research shows office real estate is about 95 percent occupied, Sprague said.

"It's difficult to find large block [space in Southwest Austin], but you can still get office space and not have to pay downtown rates," Stricklen said. "When you start to talk about Northwest [Austin] there's a lot more office space up there, but it's a lot farther from downtown."

How Southwest attracts companies

South Austin draws tenants with strong schools and available parking, Gump said.

When companies relocate, training options for employees are among top concerns, said Mike Midgley, Austin Community College vice president of instruction.

"I think [ACC Pinnacle in Southwest Austin] gives you a really great resource to use for economic development and attracting companies to this particular area," Midgley said.

ACC can help meet companies' training needs by offering on-site classes. ACC recruits representatives from local employers to serve on technical programs' industry advisory committees to ensure students gain skills companies want, Midgley said.

To recruit companies, the Greater Austin Chamber of Commerce targets areas of the nation where it is more expensive to do business than in Central Texas, Porter said, citing California, the upper Midwest and the Northeast as examples that allow Austin's technology talent to benefit.

"That traditional tech sector hub [in Austin] has always been Northwest and North Central, primarily because of Dell in its beginnings," he said. "I think over the last 10 years, we've seen more and more of Southwest [Austin] becoming a tech hub as well."

Semiconductor companies' presence has grown in Southwest Austin, Stricklen said.

"You've got some fairly sizable semiconductor companies out here so that if you've got a smaller semiconductor company, you might feel like you've got a better opportunity to attract talent on the Southwest side of town," he said.

Challenges

Impervious cover and recharge restrictions mean there isn't much land left to be developed in Southwest Austin, Sprague said.

Another hindrance is traffic, Porter said, recalling one company in Southwest Austin that considered moving to Northwest Austin. After surveying employees, however, the business learned most would not stay with the company if it moved based on their commute concerns.

"We absolutely need [to build a] connection from MoPac to I-35, regardless of what ends up being developed there," Gump said.