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Net absorption in the Austin retail market stood at 458,000 sq. ft. in the first quarter—up from 392,000 sq. ft. in Q4 2019—while leasing activity included 755,000 sq. ft. of signed deals.
Occupancy at 95.9%
Net absorption in the Austin retail market stood at 458,000 sq. ft. in the first quarter—up from 392,000 sq. ft. in Q4 2019—while leasing activity included 755,000 sq. ft. of signed deals. The overall occupancy rate increased slightly by 10 basis points quarter-over-quarter, although remained unchanged year-over-year at 95.9%. The retail market saw overall average asking rates increase marginally by $0.04 per sq. ft. quarterover- quarter to finish at $21.74 on a triple-net basis. A year ago, average rates were at $21.50, representing a 1.1% increase.
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.
Supply and demand
The Austin retail market absorbed 458,000 sq. ft. and delivered 444,000 sq. ft. during Q1 2020. Of the new construction delivered so far in 2020, 75% has been leased, and of the 1.5 million sq. ft. still in the pipeline, about half has been spoken for. Strong population growth and above-average job growth had all underscored Austin’s solid fundamentals. The new rooftops and jobs have driven demand for retail, which has led to an occupancy rate at or above 95.0% for the last five years, prior to the coronavirus (COVID-19) pandemic.
Investment sales activity
Real Capital Analytics data reports quarterly retail sales volume for Q1 2020 in the Greater Austin area at $144.3 million, down slightly compared to this time last year at $151.3 million. The entire capital composition for buyers in 2020 was made up of 100% private investors. For sellers, the majority was 71.1% institutional and 28.3% private investors.
Leasing activity remained steady during the first quarter, with a total of 444,000 sq. ft. leased in the Austin market—compared to 320,000 sq. ft. at this time last quarter. The amount of square feet leased by submarket had Cedar Park leading the way with 336,751 sq. ft. (45%); and Round Rock in second at 99,359 sq. ft.). The largest lease signings occurring in January 2020 included Furniture Mall of Texas signing 95,000 sq. ft. and Urban Air Adventure Park signing 50,000 sq. ft., both in Shops in Tech Ridge at 12901 N I-35 Highway in the Northeast submarket.
Asking NNN asking rates
The Austin retail overall triple-net average rates are at $21.74 per sq. ft., an increase of $0.24 from $21.50 a year ago. Rent growth has varied across Austin submarkets, and with additional space likely coming available in Austin, tenants may 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.
Austin area home sales hold steady in March
Local shelter-in-place orders that went into effect on March 24 had little impact on March home sales, according to the Austin Board of REALTORS®. In March, residential sales in the five-county metro increased 2.2% year-over-year to 3,042 sales and median price jumped 11.7% year-over-year to $335,200. Monthly housing inventory declined 0.7 months year-over-year to 1.6 months of inventory, and average days on market decreased from 65 days to 54 days. “For most of March, it was still ‘business as usual,’ and REALTORS® adapted early to continue serving homebuyers and sellers safely,” Romeo Manzanilla, 2020 Austin Board of REALTORS® president, said. “Declines in listing activity and pending residential sales in March indicate that we won’t begin to see the true impact of COVID-19 on the housing market until our April report.”
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.
Director of Research
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