Businesses' growth boosts office occupancy

Twenty percent of commercial real estate activity in the Austin area is taking place in Northwest Austin, said Doug Swanson, director of regional client services for Xceligent's Central Texas market. Xceligent collects data on commercial real estate in the U.S., including information on tenants, buildings available for sale and for lease, and historical trends.

In Northwest Austin, vacancy rates are low, absorption—the rate at which available space is leased—is high and rental rates are on the rise, Swanson said. Because demand is high and the area has a low supply of available commercial real estate space, it is a good time for developers to build more inventory, he said.

"Northwest is a good submarket [of Austin]," Swanson said. "Things are happening in the Northwest."

From September to December in 2012, the biggest changes in occupancy occurred mostly in North and Northwest Austin, according to Xceligent's market data report. The reports track single- and multi-tenant office buildings greater than 20,000 square feet, excluding medical, government and owner-occupied buildings.

One recent lease is SailPoint Technologies, which moved into 38,350 square feet at Four Points Centre, located near RM 2222 and RM 620, in 2012. Earlier in 2012, University Federal Credit Union bought a 246,000-square-foot building at 8303 N. MoPac near Steck Avenue to serve as its corporate headquarters. UFCU intended to occupy 100,000 square feet in 2013 and lease the remaining space.

Research Park Plaza has seen great activity in the past year. In May 2012, Emerson Process Management moved from its office in Research Park Plaza to Frontera Vista off SH 45 N in Round Rock. Since then, two entities—the FBI, which has leased 49,000 square feet, and Austin-based vacation rental company HomeAway, which has leased 30,606 square feet—have signed on at the office park. Those leases are in addition to Visa's announcement that it leased 175,000 square feet at the office park.

Growing business

Some companies such as NI are opting to build their own office space. In September, construction began on Apple's Americas Operations Center at the Riata Office Complex, located on Parmer Lane at Delcour Drive just south of McNeil Drive. Apple also leased an additional 27,361 square feet of space across the street from its existing campus on Riata Vista Circle.

Richard Paddock, office specialist at Austin-based HPI Real Estate Services and Investments, handles leasing for Riata. He said tech companies might be drawn to Northwest Austin because there is ample room to grow and create more campus-like facilities with pedestrian walkways. Apple's new facility, for example, will include seven office buildings and three parking garages on 38 acres.

Xceligent's data indicates that North and Northwest Austin have the most blocks of office space compared with the South and Central areas of Austin.

"The thing that has been successful for the northwest for the past year and a half or so is that there are large blocks of space," Paddock said.

Sustainable market

Paddock said that as more West Coast–based companies such as Facebook, Electronic Arts and PayPal open offices in Austin, other businesses have become increasingly interested in the city.

"People feel that Austin is sustainable and has a stable market," he said.

Paddock said that when Visa decided to expand into Austin, Southwest and Central Austin did not have the space to accommodate its needs, and Northwest Austin had more options.

Other companies such as EA, Dell and Samsung also found that North Austin has been able to accommodate their expansions, said Troy Holme, senior vice president of brokerage services at commercial real estate firm CB Richard Ellis. Holme handles some leasing for Research Park Plaza, the location of Visa's new Global IT Center.

"I imagine that over time, Visa will grow even bigger than 175,000 square feet," Holme said. "We've always had some technology here, and there's some organic growth in Austin that is expanding with Apple, Dell and Samsung."

In August, Samsung announced plans to invest $4 billion in expanding its Austin microchip plants.

"I think the investment level [in commercial real estate] is high due to the great statistics that have come out in Austin recently in the last three to four years," Paddock said. "A lot of eyes have been on Austin for a while."

A desirable location

Holme said many companies find Austin desirable for its affordable housing, good schools, highly educated work force and lack of state income tax. He also mentioned the number of lists Austin has topped, including in January when Austin made Forbes magazine's "Fastest Growing Cities" list for the third year in a row.

Holme said that even in challenging times such as the recession, people believe that Austin is a city that can withstand hardship and is a good place to grow business.

In 2008, Northwest Austin's commercial vacancy rate was 15.8 percent and climbed to 19.3 percent in 2009, according to Xceligent's data. Swanson said that a vacancy rate of more than 15 percent is considered high.

In 2010, vacancy had dropped to 17 percent, and the northwest area saw a drop in 2011 to 14.3 percent. By the end of 2012, the vacancy rate was 11.5 percent. In the past year, Holme said, many offices have become fully leased.

"There has been a big surge in activity," he said.

Holme said some businesses have discussed spec development, which is when construction of a building occurs without tenants signed on, but right now, mortgage rates are not favorable. He said new development most likely would not occur until about 2015.

"When supply is far less than the demand, more buildings will come online," he said.