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The Austin industrial market’s overall vacancy rate dropped to 7.7% during the fourth quarter of 2019, a decrease of 30 basis points quarter-over-quarter, compared to an increase of 110 basis points year-over- year. Class A space ended the year at 21.9% vacancy, up from 18.0% this time last year, based on a total inventory of 8.4 million sq. ft. in 83 existing industrial properties.
Overall vacancy tightens
The Austin industrial market’s overall vacancy rate dropped to 7.7% during the fourth quarter of 2019, a decrease of 30 basis points quarter-over-quarter, compared to an increase of 110 basis points year-over- year. Class A space ended the year at 21.9% vacancy, up from 18.0% this time last year, based on a total inventory of 8.4 million sq. ft. in 83 existing industrial properties. In addition, overall net absorption remained positive for the ninth consecutive quarter, totaling 732,000 sq. ft., up from 398,000 sq. ft. this time last quarter. Total net absorption in 2019 ended the year at 1.6 million sq. ft. New supply delivered to the market in 2019 stood at 2.7 million sq. ft., with 46% of that space available for lease. There is an additional 2.1 million sq. ft. under construction, with 18% already spoken for. Triple net average monthly asking rents registered at $0.84 per sq. ft. in the fourth quarter, compared to $0.86 per sq. ft. in Q3 2019.
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.
Vacancy at 7.7%
Austin’s industrial vacancy rate, measuring all space not currently occupied by a tenant, stood at 7.7%, down from 8.0% in the third quarter, and up from 6.6% year-over-year. Among the major property types, Warehouse/ Distribution ended the year at 8.6% vacancy, Manufacturing closed at 3.0% of unoccupied space, and Flex space registered at 8.8%. Vacancy in the Austin industrial market has averaged 6.3% during the last five years (Q4 2014). There is currently an abundant supply of space in the Austin area industrial market, including the 2.1 million sq. ft. under construction—82% of which is available for lease.
Positive net absorption continues
Net absorption has remained positive for a ninth consecutive quarter, totaling 732,000 sq. ft. for Q4 2019. Spaces that became occupied in the fourth quarter include OES Equipment moving into 99,925 sq. ft. at 7900 E. Riverside Dr. in the Southeast submarket; Home Depot taking 85,400 sq. ft. in Springbrook Corporate Center in Pflugerville; and FedEx occupying 85,000 sq. ft. in the new Park 183 South in the Southeast submarket. Spaces that have become vacant, resulting in negative absorption during the quarter include 57,557 sq. ft. in Southpark Business Commerce Center- Building 2 at 4509 Freidrich Lane in the Southeast submarket; 56,721 sq. ft. in Crystal Park at 120 E. Old Settlers Blvd.-Building C in the Round Rock submarket; and 54,408 sq. ft. in North Tech Business Center at 4616 W. Howard Lane in the Northwest submarket.
Amazon considering Pflugerville
Pflugerville, a suburb about 17 miles north of downtown Austin, is contemplating a $200 million, 3.8 millionsq.- ft. distribution center, that could be as tall as five stories dubbed “Project Charm.” The proposed site plan has 3 million sq. ft. of robotic mezzanines space, 781,000 sq. ft. of warehouse space, 43,000 sq. ft. of office space, and includes 69 loading docks plus room for 242 trailers. The up-and-coming multistory logistic centers are more widespread in Europe and Asia where land prices are more expensive. Amazon and other retailers have already tried the new concept in Seattle and are considering locations in Los Angeles, Memphis, Nashville, New York, and San Francisco.
Investment sales trends
Real Capital Analytics data reports the 2019 year-todate industrial sales volume in the Austin area at $1.27 billion compared to 2018 at $684.8 million, resulting in a significant year-over-year volume increase. The primary capital composition for buyers in 2019 was made up of 59.7% institutional investors and 35.8% private investors. For sellers, the majority was 57.2% crossborder (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) and 17.3% REIT/listed investors. In addition, by property type analysis, 63% represented warehouse sales and 37% flex properties.
Large portion of MetCenter sold
In the fourth quarter of 2019 Austin-based Zydeco Development sold a 404,800-sq.-ft. industrial and office portfolio in southeast Austin near Austin-Bergrstrom International Airport. The five-building portfolio consists of a 160,000-sq.-ft. industrial building currently leased to Amazon.com and the self-driving car group of Uber Technologies Inc., in addition to a 244,800-sq.-ft. office facility in four buildings leased to tenants including the state of Texas, Ascension Seton, Arrive Logistics Inc., Kapsch TrafficCom and Austin Java. Mohr Capital purchased the portfolio in the MetCenter, a 550-acre mixed-use business park, for $100 million, which equates to about $247 per sq. ft.
Asking NNN rates remain elevated
The industrial market in the Austin area saw triple net average monthly asking rents at $0.84 per sq. ft. at the end of 2019, unchanged from end-of-year 2018. The Austin average monthly asking rents have remained above $0.80 per sq. ft. for 11 consecutive quarters or Q2 2017. Using the same metrics, the price to rent Warehouse/Distribution space was recorded at $0.73, Manufacturing space at $0.65, and Flex at $1.13.
Austin No. 1 ranking In ULI Emerging Trends
The Urban Land Institute Emerging Trends in Real Estate® 2020 forecast returned Austin to the top spot in the ranking of national markets to watch. Austin, which ranked No. 6 last year and No. 2 in 2017, regained the No. 1 position in Overall Real Estate Prospects among 80 markets surveyed. Since 2010, Austin has ranked seventh or higher in each Emerging Trends in Real Estate® report. Among the 80 markets studied, Austin had the highest projected population growth rate for the coming five years. The report concluded that survey respondents rate Austin a solid “buy” for industrial, offices, and apartments for the coming year.
Director of Research
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