Office- Landlords Perspective

The lack of economic and job growth continues to put pressure on the Austin office market and building owners alike. While it appears that further layoffs in Austin are unlikely, without new job growth, many of the vacant office buildings in Austin will not be successful in attracting companies to occupy their vacancies. Quite a bit has been written recently about both the “jobless recovery” and the value correction in commercial real estate. The only real way of solving commercial real estate problems is through true job growth. Job growth will increase demand for office space and increase occupancy levels.

The lack of demand in Austin is truly beginning to put pressure on many owners. In 2009, there was one major office project (River Place) that was foreclosed on. It is exceedingly possible that as many as five to six office projects could see this very same fate in the next six months. This situation creates a number of leasing issues. If an owner is on the brink of losing their property, the owner might be willing to enter into a highly aggressive lease with a Tenant. The deal seems rosy until the Tenant discovers that the owner’s lender will not approve the aggressive lease and foreclosure proceedings have already begun. This exact situation has already happened in Austin and will continue to happen more and more within the next year. Financially strong owners will have a much easier time securing and closing new tenants, while weak properties will instantly be “off the market”. In a period of limbo, as banks and other lenders devise a plan of action to either sell the vacant building or own them for a period of time in hopes of the market improving, it will likely take nine to 12 months for this transition to occur. Banks have been slow to make decisions about foreclosure and they do not have the personnel to operate and lease vacant office space.