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Austin’s retail market remained tight during the second quarter of 2019, with the overall vacancy rate unchanged quarter-over-quarter and year-over-year at 4.2%. Net absorption also remained at the same level compared to last quarter at 114,000 sq. ft., continuing to stay positive for 32 consecutive quarters.
Austin’s retail market remains steady
Austin’s retail market remained tight during the second quarter of 2019, with the overall vacancy rate unchanged quarter-over-quarter and year-over-year at 4.2%. Net absorption also remained at the same level compared to last quarter at 114,000 sq. ft., continuing to stay positive for 32 consecutive quarters, or eight years. In addition, metro Austin’s leasing activity stood at 581,000 sq. ft., very close to the amount of activity in the previous quarter. The retail market saw overall average asking rates rise $0.39 per sq. ft. quarter-over-quarter at $22.22 per sq. ft. on a triple-net basis. Austin’s retail market has seen occupancy rates at or above 95% for nineteen consecutive quarters, or Q2 2014.
Austin economy remains healthy
The Austin metro realized a 3.3% annualized increase in jobs during the three months ending in May. Growth was led by the construction and mining sector, which grew an annualized 27.5% (4,000 jobs). The information sector also experienced expansion with 9.7% growth (800 jobs). Austin’s unemployment rate dropped from 2.6% in April to 2.5% in May, the lowest recorded rate since December 1999. The state unemployment rate declined from 3.7% in April to 3.5% in May, whereas the U.S. remained at 3.6%. For the third year in a row, Austin is the No. 1 Best Place to Live in the U.S., based on the U.S. News & World Report: Best places to live in the U.S. in 2019. U.S. News ranked the 125 most populous metro areas offering the best combination of jobs, desirability, cost of living, and quality of life.
Austin retail market thriving
Austin retail market fundamentals are booming, with occupancy at 95.8% for three consecutive quarters, and 1.1 million sq. ft. of leasing activity so far in 2019. Net absorption has remained in positive territory in all except four quarters since NAI Partners began tracking performance in the retail sector in 2006—13 years. Supply and demand have been equally aligned for the last decade with supply averaging 263,000 sq. ft. and demand 301,000 sq. ft. per quarter. Available space is tight in the retail market, while awaiting the completion of over 1.5 million sq. ft. of retail space—of which half is available for lease—to help meet demand. 315,000 sq. ft. has been delivered to the greater Austin retail market in 2019, with only 25% of that space available.
Crystal Falls Tower Center sold
Real Capital Analytics data reports the second quarter sales volume for 2019 in the retail market of the Greater Austin area at $172.8 million compared to first quarter 2019 at $125.6 million. The primary capital composition for buyers in 2019 is made up of 67.2% private investors, and 21.4% institutional investors. For sellers, the majority was 42.7% private investors, and 21.1% user/other investors. In June ACF Property Management acquired Crystal Falls Tower Center from Cypress Equities. The 93,642-sq.-ft. retail center is located on 12.7 acres in Leander, Williamson County, a suburb just north of Austin. Major tenants at the time of sale include Randalls grocery store, Cost Cutters, Orangetheory, and Tomilsons Feed. The property was built in 2016 and renovated in 2018.
Leasing activity keeps up the stride
Leasing activity remained active during the second quarter, with a total of 581,000 sq. ft. leased in the Austin market—compared to 541,000 sq. ft. at this time last quarter. The amount of square feet leased by submarket had the South leading the way with 91,000 sq. ft. (16%), the Central and East/Southeast submarkets tied for second at 75,000 sq. ft. (13%), and third place taken by the Northeast at 69,000 sq. ft. (12%). The largest lease signings occurring in Q2 2019 included Burlington Coat Factory leasing 29,960 sq. ft. in Sunset Valley Shopping Center in the South submarket; a 26,000-sq.-ft. lease signed in Plaza Saltillo in the East submarket; and Crux Climbing Center inking a deal for 20,627 sq. ft. at 6015 Dillard Circle near ACC Highland Mall Campus in the Central submarket.
Reimagined H-E-B grocery store
One of its oldest Austin stores, the H-E-B located at 2400 S. Congress, will be replaced with the first multi-level H-E-B in Austin. The grocery store at 2400 S. Congress St. opened in 1957 with 25,000 sq. ft. and later expanded to 69,000 sq. ft. Construction is set to begin in late 2020, turning it into a spacious 100,000-sq.-ft. grocery store complete with a beer garden, food hall and two levels of underground parking. Renovations are expected to be completed in 2022. The current store will stay open through the permitting and planning process, then when construction begins a temporary store will open at the Twin Oaks Shopping Center.
Asking NNN rates continue to increase
The retail market saw overall average asking rates rise $0.39 per sq. ft. in Q2 2019 at $22.22 per sq. ft. on a triple-net basis quarter-over-quarter. Vacant space has lessened in Austin’s retail market during the last five years with occupancy rates at or above 95% for nineteen consecutive quarters, or Q4 2014. While retail availability is especially limited across the Austin area, it is particularly tight within the North/Domain, with a total inventory of approximately 7.5 million sq. ft., a vacancy rate of 2.9%, and the average asking triple net rent at $20.25 per sq. ft. Overall average asking rates have climbed 27.6% over the last five years from $17.42 per sq. ft. to $22.22 per sq. ft. at the half way mark of 2019. 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 demand the highest rents.
Austin: one of the most desired cities to live in the U.S.
Single-family home sales experienced strong gains in the Austin-Round Rock Metropolitan Statistical Area (MSA) but declined in the city of Austin in the first half of this year, according to the June and Midyear 2019 Central Texas Housing Market report. While the market continues to grow due to strong demand, Austin’s limited housing inventory and increasing prices are pushing people further into the suburbs. Austin area single-family home sales increased 4.3% year-over-year, while the median home price increased 1% during the same time period to $315,000. In the city of Austin, single-family home sales in the first half of the year decreased 1.6% year-over-year, while the median price for a single-family home rose 3.2% to $387,100.
Director of Research
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