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The Austin industrial market’s overall vacancy rate was down 110 basis points quarter-over-quarter at 7.4%, and down 60 basis points year-over-year


Vacancy drops to 7.4%
The Austin industrial market’s overall vacancy rate was down 110 basis points quarter-over-quarter at 7.4%, and down 60 basis points year-over-year. Class A space ended the third quarter at 18.4% vacancy, down from 26.1% this time last year, based on a total inventory of 9.5 million sq. ft. in 94 existing industrial properties. In addition, overall net absorption totaled 1.5 million sq. ft., significantly exceeding the 243,000 sq. ft. this time last quarter, and the 338,000 sq. ft. from this time last year. There is 6.8 million sq. ft. under construction that includes the 3.8 million sq. ft. Amazon Distribution Center, with a remaining 660,000 sq. ft. available for lease. In addition, of the 1.9 million sq. ft. completed in 2020, 32% of that space is available. Triple net average monthly asking rents registered at $0.93 per sq. ft. in the third quarter, up from this time last quarter at $0.92 and last year at $0.89 per sq. ft.

Economic indicators
The Federal Reserve Bank of Dallas reported that the Austin economy continued to improve in August. While jobs and the unemployment rate improved in June, July and August, neither metric has returned to its March level. Austin’s unemployment rate fell further to a still elevated 5.4% in August. The jobless rate ticked down to 6.8% in Texas and 8.4% in the nation. Austin payrolls expanded 6.1% (nonannualized), or by 62,620 net jobs, in the three months ending in August. Leisure and hospitality led the expansion with a 19.1% increase, or 16,570 jobs. Sectors that experienced losses were construction and mining (-1.2%, or 840 jobs) and information (-0.6%, or 210 jobs). Manufacturing and financial activities were the only sectors to post positive job growth for the first eight months of the year.



Third highest quarterly net absorption
Q3 2020 registered the third-highest quarterly net absorption total in two decades at 1.5 million sq. ft. This comes with significant move-ins from Amazon, 3-Way Logistics, Omni Logistics, and Lowe’s—together totaling almost 700,000 sq. ft. The Austin industrial market has grown to 95 million sq. ft., expanding the metro’s inventory by 15%, or 12.3 million sq. ft. in the last five years—with demand outpacing supply in only three of the past nine 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 Q3 2020 positive net absorption was realized primarily in Warehouse/Distribution space at 1.3 million sq. ft., Flex space ended the quarter at 190,000 sq. ft., and Manufacturing space finished at 5,700 sq. ft.

Healthy leasing activity in third quarter
Leasing velocity remained steady during the third quarter at 2.1 million—up slightly from the previous quarter’s 2.0 million sq. ft.—and down slightly from this time last year at 2.3 million sq. ft. Top transactions during the third quarter included Amazon signing a deal for 307,840 sq. ft. at 2575 Kyle Crossing in Hays County; a renewal for BAE Systems for 140,394 sq. ft. at 6500 Tracor Lane in the East submarket; 3-Way Logistics inking a deal for 130,438 sq. ft. at 116 E. Old Settlers Blvd. in Round Rock; and Omni Logistics signing for 126,364 sq. ft. at 4801 Freidrich Lane in the Southeast submarket. As the coronavirus pandemic continues to weigh on the larger Austin economy, the industrial asset class has remained more resilient than most.

Tesla’s $1.1 billion factory in southeast Austin
Tesla plans to start delivering the Cybertruck from its new factory underway in Austin in Q4 2021. Tesla reported record-breaking results for the third quarter with profits more than doubling year over year to $331 million. Its revenue jumped 39% to $8.9 billion largely because of a record number of vehicle deliveries. Tesla’s Austin facility is expected to include battery and cell manufacturing on site, plus general car assembly, painting, die casting, drive unit assembly, stamping and body-in-white manufacturing, which is putting the frame of the car together. Tesla’s plans have generated significant real estate activity in the area surrounding the future plant, as residential and commercial developers alike have proposed new projects and expansions of nearby business parks.

Investment sales trends
Real Capital Analytics data reports industrial sales volume for Q3 2020 in the Austin area at $140.8 million, up considerably from last quarter at $27.1 million. The primary capital composition for buyers in 2020 was made up of 43.1% private, 36.0% institution, and 15.5% REIT/listed investors. For sellers, the majority was 93.8% private investors, and 5.4% 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 701, 4905-5001, 5005, and 5109 E. Ben White Blvd. and 3507 and 3533 Chapman Lane, a 145,000-sq.-ft. industrial portfolio along State Highway 71 in Southeast Austin, sold to PlaceMKR. The seller, John H. McCall had the properties fully leased to Kyrish Truck Center, Ace Contracting Supply, Austin Speed Shop, Stainless Steels, Austin Community College, and Casa Moreno.

Asking NNN rates
The monthly average rate for Flex space is currently at $1.24 per sq. ft.; Manufacturing rates are at $0.68; and Warehouse/Distribution space sits at $0.79. The Northwest ($1.35 PSF) and Southeast ($1.06 PSF) submarkets currently have the highest monthly overall average rate, followed by the Northeast ($0.92). 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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