Special offer

$300 PSF for Office Condo Projects in the Southwest Submarket

By
Real Estate Agent with Texas Realty Partners, LLC

The market for office condo and office buildings is in tight supply in the Southwest Sub-market.  I recently performed a comps analysis for the area and was interested to see the rise in general price levels for office condo projects.

Currently there are a couple of new projects that are under construction or partially completed.  These newer projects are asking $298 for completed shell or $200 to $215 for shell space.  One has to start to wonder if the advancing availability of credit is fueling excessive pricing in this market. 

After performing a discounted cash flow financial analysis on a standard purchase of a 4,300 SF office condo, assuming market rents of $24.50 with $.50 bumps for five years, the deal presents a positive IRR at a sales price of $300 PSF.  This analysis assumed a considerable amount of finish out - $50 PSF in addition to a purchase price of $225 PSF.  For a user this supports purchasing as an effective alternative to renting due to the benefits of the tax shield created by depreciation as well as the interest expense deduction.  

With office prices continuing to rise and the lack of build-able lots with impressive views of the Central Texas Hill Country, the projected sales price of $300 PSF seems to be supported by the analysis.  The question remains whether Austin can remain competitive in the result of hire prices for office space. 

Many tenants who renewed or leased in 2001 and 2002 were leasing during a period of very low rents due to the decline in Austin's economy.  The continued growth of Austin during this period has led to strong occupancy rates across product lines. 

While the prices are getting high and the question remains whether office in the exurban area like Westlake can demand pricing comparable to that of downtown Austin.  Time will tell, but from a financial analysis standpoint the deals pencil out from a net present value standpoint.  So for now the answer is still GO vs. NO GO. 

Comments (1)

Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Loren I  appreciated your analysis of the office condo investment. Thank you for the help.

Bill Roberts

P.S. join my group All Land and post this there. We like development projects

Aug 21, 2007 06:17 AM