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Austin’s retail market remained steady during the fourth quarter of 2019, with the overall vacancy rate unchanged quarter-over-quarter—and up 10 basis points year-over-year—at 4.2%. Net absorption also remained at the same level compared to last quarter at 295,000 sq. ft., continuing to stay positive for 34 consecutive quarters, or over eight years.


EXECUTIVE SUMMARY

Austin’s retail market remains tight

Austin’s retail market remained steady during the fourth quarter of 2019, with the overall vacancy rate unchanged quarter-over-quarter—and up 10 basis points year-over-year—at 4.2%. Net absorption also remained at the same level compared to last quarter at 295,000 sq. ft., continuing to stay positive for 34 consecutive quarters, or over eight years. In addition, metro Austin’s leasing activity stood at 499,000 sq. ft., up slightly from the amount of activity in the previous quarter. The retail market saw overall average asking rates decrease $0.60 per sq. ft. quarter-over-quarter at $21.49 per sq. ft. on a triple-net basis. Austin’s retail market has seen occupancy rates at or above 95% for twenty-one consecutive quarters, or Q3 2014.

Close to full employment

The Austin economy continued to grow at a steady pace in October. Austin’s unemployment rate remained at 2.7% in October, unchanged since July. The unemployment rate for the state stayed at 3.4% for the fourth consecutive month, while the jobless rate for the nation increased to 3.6%. In the three months ending in October, Austin added jobs at a 2.5% annualized rate, or a net 6,900 jobs. The construction sector led expansion with 1,279 net jobs (8.0%), followed by leisure and hospitality with 1,555 jobs (4.6%). Professional and business services gained 1,770 jobs.

MARKET OVERVIEW

Healthy Austin retail market

Austin retail market fundamentals are very strong, with occupancy at 95.8%, and 2.3 million sq. ft. of leasing activity during 2019. Overall net absorption has remained in positive territory in all except four quarters since NAI Partners began tracking performance in the retail sector in 2006. Supply and demand have been equally aligned for the last decade with supply averaging 275,000 sq. ft. and demand 318,000 sq. ft. per quarter. Available space is tight in the retail market, while awaiting the completion of 1.8 million sq. ft. of retail space—of which 40% is available for lease—to help meet demand. 963,000 sq. ft. has been delivered to the greater Austin retail market in 2019, with 27% of that space available.

Investment sales activity

Real Capital Analytics data reports the fourth quarter sales volume for 2019 in the retail market of the Greater Austin area at $234.2 million compared to fourth quarter 2018 at $155.1 million. The primary capital composition for buyers in 2019 is made up of 76.1% private investors, and 13.4% institutional investors. For sellers, the majority was 66.3% private investors, and 12.1% institutional investors. In December, Casper Chou acquired The Hub at Research & 45 from Sandalwood Management for an undisclosed price. The two-property, 152,104-sq.-ft. retail center is located at 13945 Research Blvd in Cedar Park. Major tenants at the time of sale were anchor tenant The Chair King, Mega Furniture, Fast Eddie’s, and Once Upon A Child.

Partners Landlord Services Division to lease and manage property

Partners’ Investment Fund closed on its second Fund III acquisition, Triangle Center, a 58,929-sq.-ft. retail center sitting on 4.9 acres located at 2000 N Mays Street in Round Rock. Andrew Pappas and Adam Hawkins of Partners’ Investment Fund negotiated and closed the deal alongside Matt Fain of ECR, who represented the seller. This marks the eleventh acquisition for the Partners Investment Fund platform and places total transaction volume at over $100 million. The property is currently 46% occupied and includes a 1.2-acre pad site with I-35 frontage.

Leasing activity

Leasing activity remained robust during the fourth quarter, with a total of 499,000 sq. ft. leased in the Austin market—compared to 494,000 sq. ft. at this time last quarter. The amount of square feet leased by submarket had Cedar Park leading the way with 101,000 sq. ft. (20%); Round Rock in second at 74,000 sq. ft. (15%); and third place taken by the Northeast submarket at 67,000 sq. ft. (13%). The largest lease signings occurring in Q4 2019 included Jump Street renewing 32,212 sq. ft. in Lakeline Village center in Cedar Park and Scandinavia Furniture signing a 24,150-sq.-ft. lease in Westgate center in Cedar Park.

Asking NNN rates up 23% in five years

The retail market saw overall average asking rates decrease $0.60 per sq. ft. in Q4 2019 at $21.49 per sq. ft. on a triple-net basis quarter-over-quarter, although they have climbed 22.6% over the last five years from $17.53 per sq. ft. Vacant space has lessened in Austin’s retail market during the last five years with occupancy rates at or above 95% for twenty-one consecutive quarters, or Q3 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 7.4 million sq. ft., a vacancy rate of 3.3%, and the average asking triple net rent at $21.47 per sq. ft. 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 has increased. The highest-quality space, with the best location, and ease of accessibility will demand the highest rents.

Austin area closes decade with record-breaking $13B in home sales

The Austin Board of Realtors reported that Central Texas Realtors sold more home in 2019 than any year on record. The December and Year-End 2019 Central Texas Housing Market reflects a record-breaking 33,084 home sales and 13 billion in sales volume. The report went on to say that Austin’s unprecedented population growth during the past decade has heavily impacted the real estate market. Compared to 2010, home sales in 2019 increased by 84%. That type of growth has put pressure on the market, raising the median home price from $193,520 in 2010 to $318,000 in 2019.


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

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