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Austin’s retail market remained tight during the first quarter of 2019, with the overall vacancy rate unchanged from the previous quarter’s 4.1%. The year-over-year increase was slight—up from 3.8%. With the rate at such a low level, small fluctuations up and down are not particularly significant. Net absorption slowed during Q1 2019.
Austin retail market solid
Austin’s retail market remained tight during the first quarter of 2019, with the overall vacancy rate unchanged from the previous quarter’s 4.1%. The year-over-year increase was slight—up from 3.8%. With the rate at such a low level, small fluctuations up and down are not particularly significant. Net absorption slowed during Q1 2019, although remaining positive with more tenants moving in than moving out for 31 consecutive quarters—almost eight years. In addition, metro Austin’s leasing activity stood at 526,000 sq. ft., very close to the amount of activity in the previous quarter. The retail market saw overall average asking rates rise $0.29 per sq. ft. in 2019 at $21.79 per sq. ft. on a triple-net basis. Austin’s retail market has remained tight for the last five years and has seen occupancy rates at or above 95% for eighteen consecutive quarters, or Q4 2014.
Austin added 23,800 net new jobs—growth of 2.3%—in the 12 months ending in February, making Austin the 11th-fastest-growing major metro. Wholesale trade was Austin’s fastest growing industry (8.2%) while professional and business services added the most jobs (6,200) over the last 12 months. On a seasonally adjusted basis, Austin’s February unemployment rate was 3.0%, down from 3.2% in January. The statewide seasonally adjusted rate is 3.8% in February, unchanged from January. The national rate is 3.8%, improved from 4.0%, according to the Federal Reserve Bank of Dallas. For the third year in a row, Austin is the No. 1 Best Place to Live in the U.S. The U.S. News 25 Best Places to Live in the U.S. in 2019 are ranked on the metro areas offering the best combination of jobs, desirability, cost of living, and quality of life.
Austin retail upholds high occupancy
Austin retail market fundamentals are thriving, with occupancy at 95.9% and 526,000 sq. ft. of leasing activity so far in 2019. Net absorption has remained in positive territory in the retail sector for 31 consecutive quarters—close to eight years. Supply and demand have been equally aligned for the last decade with supply averaging 384,000 sq. ft. and demand 346,000 sq. ft. per quarter. Available space is tight in the retail market, while awaiting the completion of over 1 million sq. ft. of retail space—of which half is available for lease—to help meet demand. 100,000 sq. ft. has been delivered to the greater Austin retail market in 2019, with only 20% of that space available.
Arboretum Crossing sold
Real Capital Analytics data reports the first quarter sales volume for 2019 in the Greater Austin area at $114.7 million compared to fourth quarter 2018 at $127.5 million. The primary capital composition for buyers in Q1 2019 was made up of 91.8% private investors, and 8.2% REIT/listed investors. For sellers, the majority was 42.4% institutional investors, and 29.0% both private and REIT/listed investors. In February World Class Property Co. acquired Arboretum Crossing from Kimco Realty Corp. The 191,760-sq.-ft. retail center is located on 20 acres at 9333 Research Blvd. at the intersection of Mopac Expressway, US 183, and Loop 360. Major tenants include Bed Bath & Beyond, World Market, Mattress Firm, and Ferguson Enterprises. Due to the bankruptcies of Toys ‘R’ Us and Mattress Pro and a space formerly occupied by Five Below, there is a rare 80,000-sq.-ft. contiguous vacant space.
Leasing activity keeps up the pace
Leasing activity remained active during the first quarter, with a total of 526,000 sq. ft. leased in the Austin market—compared to 552,000 sq. ft. at this time last quarter. The amount of square feet leased by submarket had Cedar Park leading the way with 160,000 sq. ft. (30%), the Central submarket coming in second at 76,000 sq. ft. (14%), and third place taken by the East/Southeast at 59,000 sq. ft. (11%). The largest lease signings occurring in 2019 included Chaparral Ice’s preleasing of 96,000 sq. ft. at iSports a 157,000-sq.-ft. multi-tenant indoor sports complex in Cedar Park; and the 36,000-sq.-ft. lease signed by Whole Foods Plaza Saltillo in the East submarket.
Pflugerville’s proposed NorthPointe project
Developer Negba Group LLC is in the planning stages of transforming almost 120 acres in Pflugerville into a new mixed-use development named Northpointe. The combined mix of uses are said to include housing, retail, lodging, and parks. The new development is made up of 81 acres between FM 685 and SH 130 and another 31 acres south of Hendrickson. Located just north of downtown Austin, Pflugerville, is the third fastest growing city in the nation and has a population of more than 63,000, according to May 2018 U.S. Census Bureau. As plans develop on the project, the possibility of thousands of residential units could be added to Pflugerville and will need to pass Pflugerville’s Planning and Zoning Commission and City Council for approval.
Asking NNN rates continue to soar in CBD
The retail market saw overall average asking rates rise $0.29 per sq. ft. in 2019 at $21.79 per sq. ft. on a triple-net basis. Austin’s retail market has remained tight for the last five years and has seen occupancy rates at or above 95% for eighteen consecutive quarters, or Q4 2014. While retail availability is especially limited across the Austin area, it is particularly tight within the CBD, with a total inventory of approximately 2.4 million sq. ft. with a vacancy rate of 3.1% and the average asking triple net rent at $35.65 per sq. ft. As of the end of the first quarter of 2019, prices have climed 23.6% from the average asking rent of five years ago ($28.84 per sq. ft.) in the CBD. Although concessions such as free rent and tenant improvement allowances make posted rents less meaningful as a market indicator, the price of Austin’s retail space is climbing. The highest-quality space, with the best location, and ease of accessibility will create the highest rents.
Austin-Round Rock MSA median home prices increased
Within the five-county MSA the median home price increased slightly by 0.8% from $302,500 in March 2018 to $305,000 in March 2019, while single-family home sales increased 1.9%. In comparison to the City of Austin, home sales dipped as the median price of a single-family home rose, according to the Austin Board of REALTORS®. The housing inventory remained significantly low, as homes continued to spend less time on the market in the city. With Austin’s economy thriving and the city being one of the most popular living destinations in the country, the housing market remains extremely tight. As the Austin area develops, accommodating existing and future needs of the growing population is a top priority.
Director of Research
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