Austin’s Industrial Market Activity Slows During Q2 2025

EXECUTIVE SUMMARY

Q2 In Review

Austin’s industrial market experienced a slowdown in Q2 2025, characterized by decreased absorption and leasing activity, as well as higher vacancy rates. The market recorded 375,122 sq. ft. of net absorption during the quarter, an 80.3% drop from the prior quarter’s 1.9 million sq. ft., and an 81.7% decrease over the year. Warehouse/Distribution properties propped up absorption recording 616,673 sq. ft., with Manufacturing posting 70,876 sq. ft. and Flex properties recorded negative net absorption of -312,427 sq. ft. in Q2. Leasing activity also declined, dropping 4.9% quarter-over-quarter to 1,902,240 and by 44.5% over the year. The vacancy rate rose to 14.1%, up from 12.4% in the previous quarter and 9.9% a year ago, reflecting increased supply pressure from 2.6 million square feet of deliveries. Available sublease space also climbed, contributing to a total availability rate of 17.1%, up from 16.3% in Q1 2025.

Construction activity continued to cool, with 14.6 million square feet underway, down 3.1% from the prior quarter and 1.7% year-over-year. Average asking rents dropped 2% quarterly, from $14.65 per square foot to $14.21 per square foot. Submarkets like Central and Northwest commanded the highest rates, at $19.09 and $18.77 per square foot, respectively.

MARKET OVERVIEW

Austin Economic Update

Austin’s unemployment rate was 3.5% in May, below the state and national rates of 4.1% and 4.2%, respectively. In May, the local labor force decreased at an annualized rate of 0.4%, while the state’s labor force increased 1.9% and the nation’s fell 4.3%. Austin employment increased at an annualized rate of 2.7% in May, surpassing the 2.4% growth rate in April. In the three months ending in May, employment increased 1.9%

The most significant gains were in leisure and hospitality (2,150 jobs) and trade, transportation and utilities (1,800 jobs). Sectors that declined include professional and business services (-770 jobs) and information (-700 jobs). Austin’s year-to-date employment in May grew 1.5%, slower than Texas, which had 2.5% growth, but faster than the nation’s gains of 0.9%.

Average hourly earnings rose to $36.29, reflecting a year-over-year increase of 5.8%. At the same time, apartment rents in Austin fell 2.7. As of May 2025, the median sales price for the Austin metro was $449,900, down 1.6% year-over-year. The median sales price is highest in the city of Austin itself, at $595,000, and lowest in Caldwell County, at $317,990.

Net Absorption Down in Q2 2025

Net absorption—move-ins minus move-outs—totaled 375,122 sq. ft. for the quarter, pushing the year-to-date total to 2.3 million sq. ft. This is down significantly by 80.3% from Q1 2025’s 1.9 million sq. ft. Warehouse/Distribution properties recorded 616,673 sq. ft. of positive absorption, driven by demand in submarkets like Hays County (626,670 sq. ft.) and Northeast (259,337 sq. ft.). Flex space, however, posted negative absorption of -312,427 sq. ft., with notable declines in the Northeast (-186,128 sq. ft.) and Southeast (-97,161 sq. ft.) submarkets. Meanwhile, manufacturing absorption was relatively low at 70,876 sq. ft., concentrated in the Northeast submarket.

The Construction Pipeline and Deliveries Contract

The construction pipeline and deliveries contracted over the quarter, which is a good sign as vacancy rates crept up over 14%. Deliveries decreased 32% quarterly to 2.6 million sq. ft. in Q2 2025 from 3.9 million sq. ft. in Q1 2025 and by 81.7% annually. The construction pipeline shrank to 14.6 million sq. ft., down 3.1% from 15.1 million sq. ft. in the previous quarter but increased 1.7% from 14.4 million sq. ft. a year ago. Significant construction remains concentrated in Round Rock/Hutto/Taylor (5.1 million sq. ft.) and Southeast (2.4 million sq. ft.).

Leasing Activity Declines

Quarterly leasing velocity—new leases and renewals—fell to 1.9 million sq. ft., a 4.9% decrease from 15.1 million sq. ft. in Q1 2025 and 44.3% below the 3.4 million sq. ft. recorded in Q2 2024. Flex leasing totaled 361,367 sq. ft., Manufacturing 519,591 sq. ft., and Warehouse/Distribution 1,021,282 sq. ft., reflecting a slowdown in Flex and Warehouse/Distribution. Manufacturing properties saw an increase in leasing activity over the quarter.

Vacancy Rate Climbs to 14.1%

The overall vacancy rate rate rose to 14.1% in Q22025, up from 12.4% in Q2 2024 and 9.9% in Q2 2024, a year-over-year increase of 420 basis points, inching closer to the all-time historic high of 14.7% recorded in Q1 2004. The direct vacancy rate reached 13.1%, while the total availability rate hit 17.1%. Georgetown posted the highest vacancy rate at 23.9%, while Bastrop County and Central remained tight at 3.8% and 6.9%, respectively. Looking forward, if the construction pipeline and deliveries continue to decrease, Austin’s industrial market should expect a decrease in vacancy rates by year-end.

Investment Sales Trends

CoStar Capital Market Analytics reports a cumulative 12-month sales volume of $9.9 million for Q2 2025. Over the past year, 135 industrial and flex properties were sold, with an average price of $185 per square foot and an average capitalization rate of 8.3%. Notable sale transactions in early 2025 include Zell One Inc.’s purchase of the 120,440 sq. ft. ATX 130, Building 1 in the Southeast submarket. The property was 100% occupied at the time of sale. Also, Buchanan Capital Partners acquired Building 8 in the Innovation Business Park from Titan Development. The 196,523 sq. ft., built in 2024, was 0% leased at the time of sale

Rental Rates Decline Quarterly and Annually

Austin’s average asking rent (NNN) fell to $14.21 per sq. ft., down 3.0% from $14.65 in Q1 2025 and by 3.1% from $14.66 in Q2 2024. Flex space averaged $18.29 per sq. ft., Manufacturing $12.28 per sq. ft., and Warehouse/Distribution $12.77 per sq. ft. Submarket leaders included Central at $19.09 per sq. ft. and Northwest at $18.77 per sq. ft.. At the same time, Bastrop County, Hays County, and Georgetown trailed at $8.47, $12.76, and $13.02 per sq. ft.

Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]