As a result of strong demand, retail vacancy in Austin dropped to a near-record low of 3.4% in the third quarter.

EXECUTIVE SUMMARY

Occupancy at 96.6%
Moving into the fourth quarter, Austin’s retail sector energy has continued. Vacancy remains at a tight 3.4%, leasing activity stayed strong, retail development is up, and rent growth increased. Vacancies have contracted during 2022 to the lowest levels recorded since Partners’ research team began tracking this statistic in 2006. Leasing for the quarter was again robust, with Austin recording 452,000 sq. ft. of activity, following Q2 2022’s 462,000 sq. ft. There is currently 2.1 million sq. ft. under construction (75% preleased), 694,000 sq. ft. delivered so far in 2022 (83% preleased), and another 1.5 million sq. ft. proposed through 2023 (78% preleased), reflecting the continuous demand for retail space in the Austin metro.

Austin’s economy among fastest growing in the U.S.
The Austin metro area has the second-fastest-growing economy in the country, according to the Kenan Institute of Private Enterprise at the University of North Carolina. Austin’s estimated regional gross domestic product — the total value of goods and services produced in one year — increased by 4.3% in 2022. Meanwhile, Austin’s unemployment rate fell to 2.8% in August, which compares to the state’s 4.1% and the nation’s 3.7%. Austin employment fell an annualized 4.6%, or by 4,933 net jobs, in August. This was due to declines in professional and business services (11.9%, or 2,814 jobs), construction and mining (11.5%, or 749 jobs), and trade, transportation, and utilities (10.2%, or 1,831 jobs). However, other services (15.4%, or 577 jobs) and leisure and hospitality (6.6%, or 728 jobs) saw increases. As of August, Austin payrolls have increased 6.1% year over year and 5.0% year to date.

MARKET OVERVIEW

Supply outpaced demand in third quarter
The Austin retail market realized net absorption—the measure of total square feet occupied in existing buildings (indicated as a move-in) less the total space vacated (indicated as a move-out) at 165,000 sq. ft. in Q3 2022. This broke the string of five consecutive quarters that demand has outpaced supply. Total space delivered during Q3 2022 was 206,000 sq. ft. Notable leasing activity during the third quarter included 40,000 sq. ft. leased by Ashley Home Store in Stone Creek Crossing in San Marcos; Thrive Pet Healthcare leased 21,000 sq. ft. in Gattis Station in Round Rock; Texas Card House leased 20,250 sq. ft. in Woodlands Shopping Center in the Far Northwest submarket, and Total Transformation inked a deal for 7,964 sq. ft. in San Marcos Place in Hays County.

Investment sales trends
Real Capital Analytics data reports the Austin metro retail sales volume for Q3 2022 at $278.6 million, down 7% from last year at $299.5 million. The primary capital composition for buyers during 2022 was made up of 43% private, 34% REIT/listed, and 22% institutional investors. The composition was 72% private, 17% institutional, and 10% user/other investors for sellers. A noteworthy transaction in the third quarter included the sale of Riverside Place, a 5-building,101,175-sq. ft. retail center at 2410 E. Riverside Drive. Built in 1986, the property was 100% leased at the time of sale. Tenants include Joy East Café, Oasis Eyebrow, iMassage Austin and Spincity Laundry. The buyer was Speer Partners, and the seller was Endeavor Real Estate Group.

Austin-Round Rock MSA home buyers gain leverage
In September, the Austin–Round Rock MSA housing market continued to return to normal activity with more available supply and a softer appreciation of home price growth according to the latest Central Texas Housing Market Report released by the Austin Board of REALTORS®. Home sales declined 18.5% to 2,992 closed listings as active listings were up 162.4% to 9,671 listings—the highest number of active listings in the MSA since July 2011. Sales dollar volume fell by 12.7% as new listings declined 3.8% to 3,967 listings across the MSA. The median price increased by only 5.6% to $470,000—setting a median price record for the month of September. Pending listings fell by 29.7% to 2,365 listings and available inventory increased by 2.1 months to 3.1 months of inventory, a little more than half the amount of inventory for a market to be considered balanced. Homes spent an average of 40 days on the market, up 23 days from September 2021.

Leta Wauson
Director of Research
[email protected]
tel 713 275 9618