Limited new space and tight vacancy rates constrain Austin’s retail market absorption

EXECUTIVE SUMMARY

Q3 2024 In Review
Austin’s retail market is experiencing a significant slowdown in net absorption due to limited new space and a tight vacancy rate of 3.4%, despite healthy leasing demand. Year-to-date net absorption reached 1.1 million sq. ft., mostly in new builds, but is down 58% from last year. Leasing activity remains steady, though slightly below last year, with significant recent signings like The Picklr and Burlington. Both new deliveries and the construction pipeline are trending downward, leading to expectations of moderate rent increases ahead as supply tightens further. Investment sales volume has dipped, but the average price per sq. ft. saw a slight uptick.

Austin Economic Update
According to the latest release of Austin’s Economic Indicators, Austin’s unemployment rate stayed at 3.4% in May, remaining below the state’s and nation’s rates of 4.0%. In May, the local labor force increased an annualized 2.3%, while the state’s increased 2.9%, and the nation’s fell 1.8%. Austin employment grew 2.9% in May after increasing 3.4% in April. The sectors with the most growth were leisure and hospitality (1,916 jobs) and trade, transportation and utilities (974 jobs). Sectors that saw a decline included professional and business services (-1,198 jobs) and information (-429 jobs). Year to date, Austin employment growth was 2.2%, below the state’s 2.8% gains and above the nation’s 1.9% increase.

MARKET OVERVIEW

Limited New Space Forcing Net Absorption Downward
Net absorption—move-ins minus move-outs—is at 174,274 sq. ft., marking 16 consecutive quarters of positive net absorption. For the year so far, 1.1 million sq. ft. of space has been absorbed, with the majority going into brand new construction deliveries. Demand for space has remained healthy but absorption levels are down 58% from one year ago. Notable recent move-ins include Couch Potatoes taking 100,000 sq. ft. at the Shops at Tech Ridge; Austin Pickle Ranch taking 49,500 sq. ft. at 11000 N I-35; Crunch subleasing 32,900 sq. ft. at 201 University Oaks Blvd in Round Rock; and Cavender’s moving into 25,036 sq. ft. at The Parke in Cedar Park.

Leasing Activity Remains Healthy
Leasing activity came in at 461,057 sq. ft. for Q3 2024, this is up 11% from last quarter, but down about 19% from last year. Recently new signed leases include The Picklr signing a 43,855-sq.-ft. lease at 8201 N FM 620; Burlington leasing 40,000 sq. ft. at Capital Plaza; and House of Gainz leasing 36,000 sq. ft. at 610 N Austin Ave in Georgetown.

Vacancy Rate Extremely Tight at 3.4%
The overall vacancy rate in Austin’s retail market is at 3.4%. The total vacancy rate has been hovering between 3% and 4% for several quarters now, with demand for new construction keeping the market in balance (1.2 million sq. ft. has been delivered so far this year and 1.1 million sq. ft. has been absorbed) from a vacancy perspective.

Both Deliveries and Construction Pipeline Continue Trending Downward
As of Q3 2024, deliveries in Austin’s retail market are at 368,977 sq. ft. This is down 43% from the same time last year (3Q 2023). Not only are deliveries down, the 1.5 million sq. ft. under-construction pipeline has also been trending downward over recent quarters and is 12% below the 1.7 million sq. ft. underway in Q3 2023. Notable retail projects currently underway include a 145,000-sq.-ft. H-E-B at 2400 S Congress Ave and Co-Op District 12, a 70,000-sq.-ft. shopping center in the Georgetown submarket. Co-op District 12 is 53% pre-leased and scheduled for delivery in June of 2025.

Investment Sales Volume Dips but Price Per Sq. Ft. Increases Slightly
CoStar Capital Market Analytics reports the cumulative 12-month sales volume for Q3 2024 at $121 million. For the past year, 147 retail properties were sold with an average $412 price per sq. ft. and an average cap rate of 5.9%. Notable recent sale transactions include Lifetime Fitness doing a sale leaseback of their 109,045-sq.-ft. property at 7101 S Mo Pac Expressway which sold for $366 per sq. ft.; JLM Financial buying a vacant former 67,654-sq.-ft. H-E-B at Georgetown Crossing as part of a larger portfolio sale; and PEBB Enterprises selling the 57,702-sq.-ft. Walden Park Shopping Center in Cedar Park. Phillips Edison & Company purchased the shopping center for $270 per sq. ft.

Asking Rates Flat Over Past Year
Austin’s average asking rent currently stands at $25.99 per sq. ft.—this is a small decrease over the past year (down 0.1%). With the construction pipeline decreasing and vacancy near a historic low, rates are expected to increase slightly over the next few quarters.

Steve Triolet
Senior Vice President, Research and Market Forecasting
tel 214 223 4008
[email protected]