Austin Industrial records 15th straight quarter of positive absorption


Q1 2023 in Review

By the end of Q1 2023, the vacancy rate bumped up 80 basis points quarter-over-quarter from 5.1% to 5.9%. This was due to record-breaking construction outperforming demand, fueled by optimism in a blossoming Manufacturing sector. Construction surged by 21% quarter-over-quarter, and a remarkable 74% year-over-year, reaching 16.7 million sq. ft. by the end of Q1 2023. Industrial rental rates have also kept up with inflation, steadily increasing from 6% last year, currently standing at $1.10 per sq. ft. In turn, leasing slowed but remained strong with 1.3 million sq. ft. in deals executed by quarter’s end. Austin’s industrial market is cooling down and leveling off from 2022, but still holds its own within Texas’s industrial markets.

Austin Economic Update

The Austin unemployment rate increased to 3.3% in February—ticking up from 2.6% last November. The metro’s jobless rate was lower than both the national rate (3.6%), and the state’s rate (4.0%). The hospitality (452 jobs, or 3.7%) and government (242 jobs, or 1.6%) sectors experienced the most growth in February, while construction and mining (688 jobs, or 9.8%) and other services (421 jobs, or 9.7%) had the largest regressions.


15 Straight Quarters of Positive Absorption

Net absorption (move-ins minus move-outs) registered a positive 1.1 million sq. ft.—predominately comprised of Warehouse/Distribution space—at the end of the quarter, up 39% from 800,000 sq. ft. from Q4 2022. This marked the 15th straight quarter of positive net absorption for the Austin industrial market, dating back to Q2 2019.

Austin Industrial Leasing Leveling Off From 2022 Peak

Quarterly leasing velocity slowed during the first quarter of Q1 2023—finishing with 1.3 million sq. ft. of deals in the books. The previous quarter and year recorded 2.3 million sq. ft. and 2.9 million sq. ft., respectively. Leasing velocity peaked during Q3 2022, a quarter that saw an all-time high of 3.4 million sq. ft. in deals. The tightening of credit and slower consumer demand will result in many speculative buildings being shelved in 2023, resulting in lessened leasing activity. In a notable transaction, Ferguson Enterprises—the largest U.S. distributor of plumbing supplies and fire products—recently took over a 207,180-sq.-ft. building—one of four in Austin’s new industrial park. This park (ATX 130) will stretch across 67 acres at Texas and Elroy Road, breaking ground in an under-supplied submarket and will service tenants that need up to 395,000 sq. ft.

Record-High 16 Million-Sq.-Ft. Construction Pipeline

Austin’s industrial construction pipeline surged to a new record-high of 16.7 million sq. ft.—a substantial 74% increase from Q1 2022. The majority of the pipeline consisted of 16 million sq. ft. in Warehouse/Distribution space and rounded out by 500,000 sq. ft. of Manufacturing space. The Round Rock submarket leads construction, with 4.1 million sq. ft.—or 24% of all space under development—followed by the Hays County submarket with 3.7 million sq.ft. (22%). Meanwhile, Austin’s deliveries totaled 2.1 million sq. ft., with the Georgetown submarket leading with 1.2 million sq. ft.—41% of the total. The largest builds in Q1 2023 include a 408,000-sq.-ft. warehouse, built in March, situated near Texas State Highway130 at 12821 Titanium St.; and a 297,000-sq.-ft. distribution
center located at 1805 Aviation Dr.

Vacancy Rate Increases to 5.9%

Three months into 2023, the overall vacancy rate in the Austin industrial market is 5.9%, up 80 basis points from 5.1% during the previous quarter, and up 250 basis points (3.4%) from the previous year. The uptick in the vacancy rate is largely due to the volume of consistent deliveries—approximately 2 million sq. ft.—produced since Q1 2022 (6,522,614 sq. ft.). As market fundamentals adjust and supply fills the market, experts predict vacancy to rise to 8.0% by the end of 2023 as a result.

Rental Rates Continue to Trend Upward

The average monthly rental rate for the Austin market was $1.10 per sq. ft. as of the end of Q1 2023, up quarter-over-quarter at $1.07 per sq. ft. and up from $1.04 sq. ft. year over-year. The average monthly rate per square foot for Flex space stood at $1.48, while rates for Manufacturing space and Warehouse/Distribution space were $1.23 and $0.98, respectively. The Northwest submarket currently has the highest monthly overall average rate at $1.46 per sq. ft., followed by the North Central submarket at $1.39 per sq. ft. Overall, the Austin rental market continues to see an upward trend in rental rates, with Flex Space pricing the highest.

Investment Sales Trends

Real Capital Analytics data reveals that Q1 2023 industrial sales volume in the Austin region was $153 million. This indicates a 60% decrease compared to Q1 2022 sales volume of $390 million. In 2023, the majority of buyers comprised of 86% private and 13% institutional, while the majority of sellers included 89% private and 8% institutional. Endeavor RE Group, a privately held real estate investment firm, was responsible for the largest acquisition of the quarter, buying a 208,110-sq.-ft. warehouse (Austin American-Statesman headquarters) at 305 S Congress Ave. This warehouse is a part of a massive 3.5 million-sq.ft. project that will cost approximately $252 million—a prominent addition to the Austin market.

Alex Babcock
Senior Research Analyst
[email protected]
tel 713 275 9618