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The Austin industrial market’s overall vacancy rate was up 10 basis points quarter-over-quarter at 8.5%, and up 60 basis points year-over-year.


Vacancy at 8.5%

The Austin industrial market’s overall vacancy rate was up 10 basis points quarter-over-quarter at 8.5%, and up 60 basis points year-over-year. Class A space ended the second quarter at 26.3% vacancy, up from 25.1% this time last year, based on a total inventory of 9.3 million sq. ft. in 94 existing industrial properties. In addition, overall net absorption totaled 233,000 sq. ft., close to the 219,000 sq. ft. this time last quarter, and an increase from 120,000 sq. ft. from this time last year. There is 2.1 million sq. ft. under construction, with about half of that space available for prelease. In addition, of the 1.5 million sq. ft. completed in 2020, about half of that space is also available. Triple net average monthly asking rents registered at $0.92 per sq. ft. in the second quarter, up from this time last quarter and last year.


Economic indicators

The Federal Reserve Bank of Dallas reported that the Austin economy continued to contract in May due to the impact of COVID-19. The Austin Business- Cycle Index—a broad measure of economic activity in the metro—fell an annualized 20.3% in May, suggesting a weak economic performance. Austin’s unemployment rate dropped to a still elevated 10.4% in May, while the unemployment rate in Texas and the U.S. ticked down to 13.0% and 13.3%, respectively. Austin jobs dropped by 114,320 net jobs in the three months ending in May. All sectors except financial activities experienced payroll losses during this period. Leisure and hospitality plunged 87.0%, shedding the most jobs (-56,000), while Health and private education services declined 47.0% (-19,300). The financial activities industry saw a 30.7% gain, adding 4,750 jobs.




New supply continues to outpace 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 Q2 2019 was 304,000 sq. ft., compared to the quarter’s 233,000 sq. ft. of net absorption—with supply outpacing demand for six out of the past eight quarters. 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 Q2 2020 positive net absorption was realized only in warehouse/distribution space at 423,000 sq. ft. Flex space ended the quarter at negative 107,000 sq. ft., and manufacturing space finished at negative 82,000 sq. ft.


How pandemic may change Austin in the long-term

The Austin Business Journal recently reported that a panel of local experts discussed how the pandemic may change Austin’s long-term outlook. In summary, Austin will face many of the same challenges it has continued to contend with on an ongoing basis, such as traffic congestion, the need for more affordable housing, and a tight labor market for tech talent. No one knows what Austin will look like in the future, but real estate investors and other businesses will be thinking about where to invest, and how those decisions will affect infrastructure moving forward.


Investment sales trends

Real Capital Analytics data reports industrial sales volume for Q2 2020 in the Austin area at $27.1 million, down from this time last year at $292.7 million. The primary capital composition for buyers in 2020 was made up of 53.7% private, 24.1% REIT/listed, and 12.7% institution investors. For sellers, the majority was 89.0% private investors, and 9.5% 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). A recent significant transaction involved Ben White 6, a 90,000-sq.-ft. industrial building in Southeast Austin, sold to Stonelake Capital Partners. The seller, Sage Land Company had the property under contract in March amid the pandemic in an off-market deal that closed in May.


Amazon signs another industrial lease

in Austin The volume of square footage signed during the second quarter was at 1.9 million sq. ft.—down year-over-year at 2.9 million sq. ft. in Q2 2019. Amazon is experiencing record demand as a result of the pandemic-induced rise in e-commerce activity. The company reports it had been actively expanding its portfolio of fulfillment centers well before COVID-19 emerged. Most recently, Amazon has signed a lease for a 307,840-sq.-ft. warehouse in Kyle Crossing Business Park at 2575 Kyle Crossing, about 20 miles south of downtown Austin. The distribution center is expected to support 200 jobs when it opens later this year. The lease follows Amazon signing multiple other industrial leases in the Austin area in Buda, Round Rock and Pflugerville. So far this year, Amazon has revealed plans for a combined total of 1.87 million sq. ft. of industrial space in the Austin metro area. Amazon’s new facility in Pflugerville is said to encompass 820,000 sq. ft. on 94-acre site 15 miles from downtown Austin. The company expects to commence operations at the Pflugerville facility in 2021. According to its website, Amazon has approximately 15 fulfillment and sortation centers—and counting—across Texas.


Asking NNN rates

The industrial market in the Austin area saw triple net average monthly asking rents at $0.92 per sq. ft. at the end Q2 2020, up between 3.5%—6.5% during the past year. The monthly average rate for Flex space is currently at $1.20 per sq. ft.; Manufacturing rates are at $0.94; and Warehouse/Distribution space sits at $0.78. The Northwest ($1.13 PSF) and Southeast ($1.10 PSF) submarkets currently have the highest monthly overall average rate, followed by the Northeast ($0.94). With the rising costs to developers that are bringing new projects with high quality space to the market, rental rates could remain elevated.

Leta Wauson
Director of Research
tel 713 275 9618

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