Austin Industrial sets new record with 16.9 million sq. ft. in construction pipeline.


Q2 2023 in Review

By the end of Q2 2023, the overall vacancy rate in the Austin Industrial market rose 160 basis points quarter-over- quarter, from 5.9% to 7.5%. Net absorption continued its streak—marking 16 straight quarters of positive net absorption— at 848,352 sq. ft. in Q2 2023. The Austin Industrial market finished the quarter with record-high construction activity in the pipeline—a total of 16.9 million sq. ft.—partially due to the robust demand for construction jobs in Austin during the quarter. After a slower first quarter, leasing activity picked up securing 2.1 million sq. ft. by the end of Q2 2023. Industrial rental rates in Austin market kept up with inflation, with a 6% increase from last year, currently standing at $1.08 per sq. ft.

Austin Economic Update

The Austin unemployment rate increased to 3.5% in May 2023, slightly up from 3.2% in April 2023. The metro’s jobless rate was lower than both the national rate (3.7%) and the state’s rate (4.1%). Construction and mining (1,670 jobs, 28%) and financial services (1,091 jobs, 17.6%) saw the most growth, while information (411 jobs, 8.8%) experienced the largest decline among the sectors. Although wages decreased by an annualized 2.1% in May 2023, hourly earnings ($33.46) were still above the national average ($33.32) and the state’s average ($31.21).


16 Straight Quarters of Positive Absorption

Net absorption—(move-ins minus move-outs)—is at 848,352 sq. ft. in Q2 2023. Although down 24% quarter-over-quarter, net absorption remained positive due to 1.0 million sq. ft. in Warehouse/Distribution space. This marks the 16th straight quarter of positive net absorption for the Austin Industrial market, dating back to Q2 2019. During the next three quarters, net absorption is projected to rise to 2.0 million sq. ft. as major pre-leased projects are expected to be delivered throughout 2023 and the beginning of 2024.

Record-High Construction in Q2 2023

Austin Industrial market ended the quarter with record-high construction activity, nearly reaching 17 million sq. ft. In Q2 2023, construction totaled 16.9 million sq. ft., primarily consisting of 808,667 sq. ft. in Manufacturing space and 15.8 million sq. ft. in Warehouse/Distribution space. Quarter-over-quarter, construction increased slightly from 16.7 million sq. ft. in Q1 2023. Year-over-year, construction increased 74% from 10.8 million sq. ft. in Q2 2022. The robust demand for construction jobs over the past few months has contributed to the increase in construction activity throughout the quarter. According to the Federal Reserve Bank of Dallas, from March 2023 to May 2023, construction led job growth in Austin with 4,492 jobs added to the market. New construction starting in Q2 2023 included a 4-building, 602,370-sq.-ft. industrial park, ATX 130, underway in April 2023, and a 3-building, 482,168-sq.-ft. industrial park, 130 Crossing, underway in May 2023. These buildings are located in the Southeast submarket and the Far Northeast submarket, respectively. In addition, deliveries increased quarter-over-quarter. In Q2 2023, deliveries reached 3.5 million sq. ft., up 64% from 2.1 million sq. ft. in Q1 2023.

Rental Rates

The average monthly rental rate for Austin’s Industrial market stands at $1.08 per sq. ft. as of Q2 2023, down quarter-over-quarter from $1.10 per sq. ft. in Q1 2023, although up year-over-year from $1.02 per sq. ft. in Q2 2022. The average monthly rate per square foot for Flex space stood at $1.55, while rates for Manufacturing space and Warehouse/Distribution space were $1.20 and $0.98, respectively. The Northwest submarket currently has the highest monthly overall average rate at $1.54 per sq. ft., followed by the North Central submarket at $1.48 per sq. ft.

Vacancy Rate Ticks Up to 7.5%

By the end of Q2 2023, the overall vacancy rate in the Austin Industrial market is at 7.5%, up 160 basis points from the previous quarter’s 5.9%. Flex, Manufacturing, and Warehouse/Distribution space have vacancy rates of 6.2%, 2.3%, and 9.2%, respectively. In Q2 2023, Warehouse/Distribution space has the highest vacancy rate among the three space types in the Austin Industrial market.

Leasing Activity Picks Up in Q2 2023

The volume of signed lease transactions during the second quarter—comprised of new leases and renewals—was 2.1 million sq. ft., up 57% from the previous quarter’s 1.3 million sq. ft., and up 22% from the previous year’s 1.7 million sq. ft. Notable leases signed within Q2 2023 include OnTrac Logistics inking a deal for a 94,202-sq.-ft. warehouse at 1310 Blue Ridge in June 2023, and Winsupply securing a lease for a 88,081-sq. ft. warehouse at 1307 Smith Road in April 2023.

Investment Sales Trends

Year-to-date, CoStar Capital Market Analytics reports the cumulative 12-month sales volume for 2023 at $192 million in Austin’s Industrial market. With 104 deals completed thus far in 2023, the average transaction
price of $162 per sq. ft. with an average transaction cap rate at 6.1%. By year-end of 2022, the cumulative 12-month sales volume was $137 million, and 279 deals were completed with an average transaction price of $235 per sq. ft. and an average cap rate of 6.0%. In a notable transaction, Ledo Capital Group and St. Clair Commercial Real Estate acquired 45.67 acres of land in San Marcos in April 2023. Developers are planning a three-building industrial park, San Marcos Business Park, totaling 665,460 sq. ft. This project will break ground in the fourth quarter of this year.

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