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The Austin industrial market’s overall vacancy rate was up 80 basis points quarter-over-quarter at 8.4%, and up 100 basis points year-over-year.



Vacancy at 8.4%

The Austin industrial market’s overall vacancy rate was up 80 basis points quarter-over-quarter at 8.4%, and up 100 basis points year-over-year. Class A space ended the first quarter at 25.4% vacancy, up from 23.8% this time last year, based on a total inventory of 9 million sq. ft. in 90 existing industrial properties. In addition, overall net absorption totaled 199,000 sq. ft., down significantly from 1.6 million sq. ft. this time last quarter, and 1.5 million sq. ft. this time last year. There is 1.9 million sq. ft. under construction, with 79% of that space available. Of the 1.1 million sq. ft. completed in 2020, 24% of that space has been spoken for. Triple net average monthly asking rents registered at $0.89 per sq. ft. in the first quarter, up from this time last quarter and last year.


Economic Indicators

The Federal Reserve Bank of Dallas reported that the Austin economy expanded at a strong pace in February. The unemployment rate held steady, and employment growth was strong. Austin added jobs at a 4.2% annualized rate, or a net 11,730 jobs, in the three months ending in February. Recent industry growth was led by the other services and manufacturing sectors, which added 1,260 net jobs and 1,080 net jobs, respectively. Additional sectors that experienced strong gains were professional and business services at 2,600 jobs, leisure and hospitality at 1,720 jobs and information at 480 jobs. Most of the data included precede the coronavirus (COVID-19) outbreak in the U.S.




New supply outpaces demand

The Austin industrial market has grown to 94 million sq. ft., expanding the metro’s inventory by 15% or 12.2 million sq. ft. in the last five years. The amount of industrial space delivered to the market during Q1 2019 was 1.1 million sq. ft., compared to the quarter’s 199,000 sq. ft. of net absorption—a wide reverse margin compared to last quarter when demand outpaced supply. Net absorption is 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) over a given period. The Q1 2020 net absorption was comprised almost entirely of flex space at positive 400,000 sq. ft., negative 22,000 sq. ft. of manufacturing space, and negative 178,000 sq. ft. of warehouse/distribution space.


The coronavirus outbreak

Economic analysis firm TXP Inc. recently reported to Austin City Council members that job losses in the Austin area during the coronavirus pandemic could top 250,000. Many unknown factors will determine the area’s future forecast, including the timing of receiving aid from the CARES Act—the federal coronavirus stimulus package, the impact to the city’s sales tax revenue, and the repercussions of decreased demand in the leisure and hospitality job sector, to name a few. Prior to the coronavirus outbreak, Austin had strong economic momentum, and the current statistics largely reflect the environment before the pandemic.


Investment sales trends

Real Capital Analytics data reports industrial sales volume for Q1 2020 in the Austin area at $141.5 million, down from this time last year at $179.6 million. The primary capital composition for buyers in 2020 was made up of 40.1% private, 31.2% REIT/listed, and 16.4% institution investors. For sellers, the majority was 85.8% private investors, and 12.3% cross-border (a transaction is defined as cross-border if the buyer or major capital partner is not headquartered in the same country where the property is located.


Leasing activity

The volume of square footage signed during the first quarter was at 1.9 million sq. ft.—up from the previous quarter’s 1.5 million sq. ft. In Q1 2020 Advanced Micro Devices Inc. signed an industrial lease for 34,995 sq. ft in the Southwest submarket at 7000 William Cannon Drive. The tenant company is a California-based provider of semiconductors.


Asking NNN rates

The industrial market in the Austin area saw triple net average monthly asking rents at $0.89 per sq. ft. at the end Q1 2020, up $0.04 from last quarter, and up $0.02 from this time last year. With additional space likely coming available in Austin, larger industrial tenants will have more leverage than at any time in the last decade with regards to negotiating rental rates, terms, tenant improvements and concessions. Disruptions from COVID-19 will also have an impact on commercial real estate landlords and tenants as difficult decisions are made to adapt to these sudden changes. Many small tenants—particularly retail tenants—have seen revenue drop 50% to 100% in some cases and simply can’t pay their rent. For companies that qualify, the CARES Act recently passed by Congress provides at least two months’ rent and wage relief for companies of 500 employees or less; landlords—many of which are also struggling, as they receive multiple rent relief requests while still having to pay property expenses and mortgage payments—expect tenants who are able to do so to apply for these funds in order to pay rent.

Leta Wauson
Director of Research
tel 713 275 9618

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