Austin’s Industrial Market’s Vacancy Continues to Rise

EXECUTIVE SUMMARY

Q1 In Review
Austin’s industrial market vacancy rate increased, driven by lower absorption and the addition of 1.9 million sq. ft. of deliveries, 82% of which are vacant. The market recorded 122,998 sq. ft. of positive net absorption during the quarter, a 42.2% drop from the prior quarter. Warehouse/distribution and flex properties bolstered absorption, while manufacturing recorded negative absorption. Leasing activity increased 8.2% quarter-over-quarter and was down 16.5% year-over-year. The vacancy rate rose 90 basis points to 15.7% from 14.8% in the previous quarter.

Construction activity considerably increased, with 13.2 million square feet underway, up 7.6% from the prior quarter. Average asking rental rates rose over the quarter, from $14.38 to $14.43 per square foot. Submarkets like South and Central commanded the highest rates.

Austin Economic Update
Austin’s unemployment rate was 3.7% in January, up from 3.6% in December, but below the state and national rates, both at 4.3%. In the three months ending in December, the local labor force increased at an annualized rate of 1.3%. The most significant gains were in government, with 2,800 jobs; education and health services, with 1,500 jobs; and construction and mining, with 1,200 jobs. Sectors that declined include professional and business services, which lost 1,300 jobs, and leisure and hospitality, which lost 700 jobs. Average hourly earnings increased to $36.43 in December.

MARKET OVERVIEW

Net Absorption Significantly Down in Q1 2026
Net absorption—move-ins minus move-outs—decreased 75.2% quarterly and 93.3% annually to 122,998 sq. ft. Warehouse/distribution properties recorded 221,818 sq. ft. of positive net absorption, driven by demand in submarkets like the Southeast, recording 364,748 sq. ft., and Round Rock/Hutton/Taylor, recording 153,991 sq. ft. Flex space contributed the least amount of 114,209 sq. ft. and manufacturing recorded negative net absorption of -213,029 sq. ft. Notable declines were in the North (-170,041 sq. ft.) and Southwest (-50,410 sq. ft.) submarkets. Some of the tenants that moved during Q1 include Skybox Datacenter, which took 469,000 sq. ft. at PowerCampus Austin, and Zellerfeld, which took 135,000 sq. ft. at Tech Ridge Five.

Construction Pipeline Up and Deliveries Down
The construction pipeline increased 5.2% quarterly to 13.2 million sq. ft. from 12.5 million sq. ft. in the previous quarter and increased 6.1% from 12.4 million sq. ft. a year ago. Significant construction remains concentrated in Round Rock/Hutto/Taylor (4.0 million sq. ft.) and Northeast (2.48 million sq. ft.) submarkets. Deliveries decreased 7.6% quarterly to 1.9 million sq. ft. in Q1 2026 from 2.0 million sq. ft. in Q4 2025 and by 50.2% annually.

Leasing Activity Up
Quarterly leasing velocity—new leases and renewals—increased 8.2% over the quarter to 2.5 million sq. ft. Flex leasing totaled 460,929 sq. ft., manufacturing 191,633 sq. ft., and warehouse/distribution 1,842,460 sq. ft., reflecting a slowdown in warehouse distribution. Notable leases that were signed in Q1 2026 include Baer Manufacturing’s lease of 606,000 sq. ft. in Crosspoint Phase II, ZT Systems’ lease of 412,000 sq. ft. at GTX Logistics Park, and U.S. LBM’s 95,000 sq. ft. lease at McCarty Park.

Vacancy Rate Increases to Historic High
The overall vacancy rate rose to 15.7% in Q1 2026, up from 14.8% in Q4 2025, and was up 23.6% year-over-year, now above the historic high of 15.3% recorded in Q3 2003. The direct vacancy rate increased 100 basis points to 14.9%, while the total availability rate rose by 130 basis points to 19.8%. Georgetown posted the highest vacancy rate at 28.4%, followed closely by the southeast market at 28.2%, while Bastrop County remained tight at 3.7%. Looking ahead, if the construction pipeline continues to rise, increasing future deliveries, Austin’s industrial market will experience higher vacancy rates in the near term.

Investment Sales Trends
CoStar Capital Market Analytics reports a cumulative 12-month sales volume of $190 million for Q1 2026. Over the past year, 98 industrial and flex properties were sold, with an average price of $143 per square foot and an average capitalization rate of 78.9%. Notable sale transactions in the first quarter include CesiumAstro’s purchase of the 267,000 sq. ft. 3-building West Austin Business Park portfolio from Velocis for an undisclosed amount. Also, Stockbridge Capital Group, LLC, purchased the 269,000 sq. ft. 3-building New Hope Phase I portfolio from Riverside for an undisclosed amount.

Rental Rates Up
Austin’s average asking rent (NNN) rose to $14.43 per sq. ft., up 0.3% from $14.38 in Q4 2025 and up from $14.41 in Q1 2025. Flex space averaged $18.92 per sq. ft., Manufacturing $11.79 per sq. ft., and Warehouse/Distribution $12.74 per sq. ft. Submarket leaders included South at $18.89 per sq. ft., and Central at $17.76per sq. ft. Bastrop County and Caldwell County trailed at $8.35 and $11.50 per sq. ft.