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Positive industrial market indicators
Austin’s industrial market got even tighter during the third quarter of 2018, with the overall vacancy rate dropping marginally to 6.4%, a decrease of 30 basis points quarter-over-quarter, although a much larger spread year-over-year, falling 120 basis points. In addition, net absorption continued in positive territory for the fourth consecutive quarter at 654,305 sq. ft.—up significantly from Q3 2017’s negative 8,881 sq. ft. Continued strong demand kept the overall NNN average monthly asking rent at or above $0.80 per sq. ft. for the seventh consecutive quarter as of Q3 2018. The price to rent both Flex and Manufacturing space remained the same, while the average asking rent for Warehouse/Distribution product dropped slightly quarter-over-quarter, pulling the overall monthly average rent down $0.01 to $0.84 per sq. ft. In addition, close to 1.5 million sq. ft. has been delivered in 2018, with about 42% of that space available for lease.
Austin economic indicators
Austin’s unemployment rate increased slightly to 2.9% in August, though still below its post-recession average of 4.8% and a percentage point below the state and national rates. Austin employment growth was modest over the three months through August, with construction and mining adding 1,800 jobs. Professional and business services also made a significant rebound, with a 12.5% rise in administrative services. Austin real GDP grew 6.9% in 2017, 2 percentage points faster than the long-term average and the fastest pace among U.S. metro areas with a population of more than 2 million.
Vacancy rate steady in 2018
Austin’s industrial vacancy rate, measuring all space not currently occupied by a tenant, stood at 6.4%, down from 6.7% in Q2 and Q1 2018. Among the major property types, Warehouse/Distribution ended the quarter at 6.6% vacancy, Manufacturing closed at only 0.5% of unoccupied space, and Flex space at 10.2% vacancy. Vacancy in the Austin industrial market has remained below 7% for the last four consecutive quarters, following all-time lows during 2016 ranging between 4.1% to 4.7%. These lows took place at the same time global ecommerce giant Amazon’s new 855,000-sq.-ft. fulfillment center opened in San Marcos. Supply shortages continue in the industrial market for certain types of space, especially large Warehouse/Distribution properties between 50,000 sq. ft. and 100,000 sq. ft. The market is awaiting the completion of over 2.0 million sq. ft. of Warehouse/Distribution space in several new projects that will help meet the demand. In addition, of the overall 2.6 million sq. ft. under construction, 90% is available for lease, which may impact the velocity of leasing activity throughout the fourth quarter of 2018.
Net absorption remains in positive territory
Net absorption continued to grow for the fourth consecutive quarter at 654,305 sq. ft.—up significantly from Q3 2017’s negative 8,881 sq. ft. Almost 1.8 million sq. ft. has been absorbed year to date in the Austin metro. Key tenant move-in’s during 2018 include HD Supply Facilities Maintenance moving into 75,051 sq. ft. at Southpark Commerce Center; 5-Star Filter taking occupancy of 65,000 sq. ft. at 6231 Stassney Road; and Centex Shred moving into 61,306 sq. ft. at 1130 Rutherford Ln-Building 2. Tenants moving out of space this year have involved the U.S. Postal Service leaving 139,380 sq. ft. at 11000 N. I-35; Flooring Services leaving 86,700 sq. ft. at 15855 Long Vista Drive; and Peerless Events & Tents vacating 80,000 sq. ft. at 2809 S. Interstate 35. Looking toward the future, Elliott Electrical Supply is expanding into a new Warehouse/Distribution 144,113-sq.-ft. space at 12555 Harris Branch Pwky. near the border of Manor, TX in far northeast Austin. Plans to commence operations are scheduled for Q4 2018.
Leasing activity remained over 1 million sq. ft.
Leasing activity increased slightly quarter-over-quarter with a total of 1.1 million sq. ft. leased in the overall Austin market, although slower than this time last year at 2.2 million sq. ft. of activity. The largest lease signings occurring in 2018 included 91,842 sq. ft. taken by 3M in Parmer 7.2 at 507 E. Howard Ln. in the Northeast submarket; 83,470 sq. ft. leased by Hyliion in Brushy Creek Corporate Center in the Cedar Park submarket; and 75,600 sq. ft. inked by American Cancer Society at 11701 Stonehollow Dr. in the North submarket.
Pecan Park at Pflugerville
IGX Consolidated LLC is expanding with plans to construct several industrial flex buildings on a 24-acre tract near Pecan St. and SH 130 for a reported sale price of $3.4 million. Named Pecan Park at Pflugerville, the complex will be one of the final steps of building out the suburb’s 130 Business Park. Initial plans show approximately 205,000 sq. ft. in seven buildings ranging from 8,600 to 45,000 sq. ft. Once the sale is final, infrastructure work is set to begin. Industrial/Flex inventory has grown from 2.8 million sq. ft. to 3.4 million sq. ft. (21.4%) during the past five years in the Pflugerville area.
Sales volume continues to grow year-over-year
Real Capital Analytics data reports year-to-date September 2018 industrial sales volume in the Austin area at $600.8 million, resulting in a year-over-year increase for the ninth consecutive month, of 116.2%. The current buyer composition is made up of primarily private investors at 65%, cross-border buyers at 27%, and institutional investors at 6%. A recent significant transaction in the Austin industrial market is the acquisition of Park 96 at 9601 Dessau Road by Stonelake Capital Partners in August 2018 for $11 million or $111 per sq. ft. The three-building, 99,000-sq.-ft. industrial complex is located in Austin’s Northeast submarket and were 92% occupied at the time of sale by Transwestern Investment Group. Major tenants at the flex complex include Allied Plastic Supply, Brooks Automation, and Wolfram Manufacturing.
Average monthly NNN asking rates remain steady
The Austin industrial market saw overall NNN monthly average annual asking rates remain stable quarter-over-quarter to finish at $0.84 at the end of Q3 2018. The price to rent Warehouse/Distribution space dropped minimally quarter over quarter, while both Flex and Manufacturing rent remained the same, pulling the overall monthly average rent down $0.01 from $0.85 per sq. ft. as of Q2 2018. Rates for industrial real estate throughout Austin show that the Northwest submarket has the highest prices for industrial space at $1.03 per sq. ft. The average rate for Flex space is currently highest in the Southwest submarket, at $1.17 per sq. ft.; Manufacturing rates peak in the Georgetown/Round Rock submarket, at $0.96; and Warehouse/Distribution space is at its high point in the Northwest at $0.88.
Director of Research
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