Austin 10th Strongest Commercial Real Estate Market

Austin is forecast to have the 10th strongest commercial real estate market nationally for the next four years, according to a new Grubb & Ellis Co. (NYSE: GBE) report.

The real estate services and investment firm Monday released its "2011 Real Estate Forecast," which foresees the start of a slow recovery in the leasing market for all property types in the coming year.

Activity in the investment market, which began its recovery earlier than anticipated in 2010, will expand beyond assets at the top and bottom of the quality scale to include properties with slightly more risk, the report said.

“All things being considered, 2010 was actually better than most anticipated it would be — we saw positive net absorption and an uptick in investment sales during the second half of the year, positioning us for a continued recovery in 2011,” said Robert Bach, senior vice president and chief economist at Grubb & Ellis.

“We have challenges to overcome, and we don’t expect fundamentals to return to their pre-recessionary peaks for several more years, but we’re slowly and cautiously building the foundation necessary to do just that.”

Analysts said Austin’s market continues to benefit from the city’s low business costs, high quality of living and a highly-educated workforce that attracts new companies to the area. Many of the sectors saw improvement last year, though industrial properties continue to struggle, according to Grubb & Ellis’ 2011 Central Texas forecast report.

“Austin’s commercial real estate market is predicted to continue its recovery in 2011, although at a slow, but steady pace due to different obstacles faced in each property sector,” said Moody Younger, Grubb's executive managing director of Texas. Although Austin witnessed an uptick in the number of properties trading hands last year compared to 2009, lower values, coupled with increased loan-to-value ratios restricted more deals. This year, the market is expected to see the beginning of a turnaround, especially in transaction volume, since debt availability and credit terms have improved.

At the same time, though foreclosures and write-downs are expected to increase as banks deal with the pool of distressed loans extended last year, Austin’s office market still managed 10th place on Grubb & Ellis’ annual "Investment Opportunity Monitor." The listing ranks metropolitan markets with the strongest investment prospects for each major property type during the coming five years. The rankings are based on 15 to 20 variables.

The vacancy rate in Austin’s office market benefited from an overall improvement in demand due to job growth in 2010, which was aided by an empty construction pipeline. For landlords most severely impacted by the down cycle, the office market is beginning to see a stabilization of rental rates.

“Austin’s office market has seen a renewed level of demand and is enjoying a healthy rebound that is expected to continue over the next year,” Younger said. “The city’s long-term investment prospects are also extremely encouraging.”

In multi-family housing, Austin experienced considerable occupancy gains and moderate rental rate growth last year. Leasing activity improved as a result of better economic conditions, job creation and an influx of people moving to the area. New construction projects are expected to taper off this year, which will likely keep positive net absorption up.

The entire Central Texas report is available here.

U.S. OFFICE MARKET STRENGTH FORECAST
Top 10 Markets 2011-2015

 1. New York
 2. Washington, D.C.
 3. Portland, Ore.
 4. Boston
 5. Los Angeles
 6. San Diego
 7. San Francisco
 8. Oakland/East Bay, Calif.
 9. Raleigh/Durham, N.C.
10. Austin

Austin Business Journal
Monday, January 3, 2011, 2:09pm CST