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Real Estate Bisnow
The largest commercial real estate publication in the United States.
January 5, 2012 


It's music to the ears: not SXSW, but the Southwest CRE submarket. For the CRE types who follow the demand for space, it's the desirable submarket. Here’s the latest and why it’s happening.

Ryan Kasten and Ford Alexander
The Southwest market is that lovely Hill Country area from the Mopac south of the river to 360 on the west and 71 on the south (in case you're geographically challenged). Oxford Commercial partner/co-founder Ford Alexander, right with associate VP Ryan Kasten, (hiding what's in that book from us, maybe it's embarrassing Christmas party photos), says it's one of the healthiest markets in Austin along with the CBD. Q3 figures show a direct vacancy in the submarket dropped to 10%, down 2.3 percentage points from Q2. The 8.1M SF submarket absorbed some 284k SF in Q3. The Southwest market activity is hindered only by the environmental restrictions resulting from the Barton Springs Aquifer (a spring-fed pool in the middle of the urban area), he tells us.
Bart Matheny
Enjoying the city view from the Aquila Commercial office, principal Bart Matheny tells us the activity level in the Southwest has been extremely strong. The chip design companies dominate the Southwest market and they’ve been in growth mode in the past several quarters, Bart says. In June, San Jose-based semiconductor chip designer Altera Corp inked a 10-year 45k SF deal in Travis Oaks at 5113 Southwest Pkwy. ArthroCare Corp is expanding dramatically on the Southwest Parkway, too, he says. The medical device maker moved in over the summer to 136k SF in two formerly empty buildings in the Lantana Corporate Center at 7000 W William Cannon Dr.
Intel/former Guaranty Bank Building
Ford says the wild card in the Southwest market is Intel. After purchasing the Guaranty bank building from the Fed, what will the company do with all of its space? (Hopefully they make it a giant Intel theme park with an Intel Celeron Processor roller coaster.) There’s the 434k SF Temple Inland Building (of which Intel plans to occupy 175k SF soon) at 1300 S Mopac to factor in, he says. Not to mention its 100k SF of leased space at Barton Skyway across the Mopac. If Intel leaves its lease space, which is highly likely since the firm bought the Guaranty building, then what happens to Temple Inland, Ford asks.
Terrace Office Park
Aquila reps The Terrace Office Park (owned by Behringer Harvard), which is losing Cirrus Logix to downtown, and Intel will eventually move out of Barton Skyway. But, there are companies vying to fill that space and it would be a good fit for those Bay Area companies looking to relocate. He’s chasing some larger users for that space and has made some trips to visit the tech companies on the West Coast. There's also three other building sites with a potential to build 700k SF, too. There's a lot of interest in the area because of its proximity to downtown, visibility, and its unique setting.
Cityview Centre
Around Thanksgiving, Pearlmark Real Estate Partners (formerly Transwestern Investment Co) bought the 91% occupied, 284k SF Southwest market office portfolio (of Cityview Centre and The Setting I-III) in Austin from The Blackstone Group for an undisclosed amount. Ford tells us that defense contractor Overwatch, which owns a building on Southwest Parkway, will be subleasing another 40k SF, too. Interesting tidbit about Ford: he took a bike trip through Tuscany this summer cycling from place to place with BackRoads.com adventure group doing about 30 to 50 miles each day and ingesting all the pasta and wine he could at night.
HPI Real Estate Services partner Sam Houston and office broker Adri Baker (who paused for a quick snapshot at the HPI HQ) tell us that much of the appeal of the Southwest market is the housing and excellent school districts. The high-end decision makers live there and want their offices next to their homes, Sam says. Adri says California tech companies like Austin because of the cheaper cost of living, good employee base, and quality of life. Not to mention a better state government, Sam says, which essentially means employees get a raise when they move here. (And they can work in their Birkenstocks.)
Santa Clara-based Maxim leased 12k SF, upgrading the quality of space to compete with others companies. Samsung moved a group to Ladera Bend purely because it was struggling to compete for engineering talent. That’s one reason the chip and tech companies are going south, Sam says. It’s a trend he thinks will continue even as rents grow. Adri says she’s seeing tenants expanding now for future growth to beat the rising rents. “Development is further away than anyone thinks; we’re designing a new building, but we don’t anticipate starting it for some 12 months or so unless we find a big tenant quickly,” Sam tells us. New development probably won’t start until 2013; and then, it likely won’t get financed without pre-leasing. Lenders aren’t open to spec development right now.
Southwest submarket
Sam says the stronger environmental regulations in the Southwest market discourages growth in that quadrant. Instead of encouraging development downtown or to the north, it has created affluency. A good example, Sam says, is in the first development cycle, some 3.5M SF was built between ’06 and ’08 with only 1M SF in the south and 2.5M SF in the north. The Northwest submarket was overbuilt compared to the Southwest, so the environmental regulations helped to keep supply down, which keeps rates higher. That’s why the investment community likes it. What Sam likes? Playing golf at the Hills of Lakeway. Adri: playing with her 2-year-old daughter, Alicia.

Jeff DeBoer
We’re delighted to announce that the US real estate industry’s chief advocate in DC has been added to the all-star lineup for Bisnow's Hotel Investment Summit at the Hilton Anatole in Dallas on Jan. 12. Although the topic of the summit is hotel investment, DC-based US Real Estate Roundtable prez and CEO Jeff DeBoer (snapped in October by a Bisneyland colleague in DC) will speak for 15 minutes on real estate-related politics and policy we should expect from the President and Congress during 2012. The Real Estate Roundtable is a legendary group of top real estate figures in America, like the heads of Vornado, Taubman, Eastdil, Colony Capital, Hilton, Shorenstein, Regency Centers, Federal Realty, BOMA, the Mortgage Bankers Association, and others. Jeff is known for telling it like it is. Save your seat now by registering here.
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