Download the PDF
Net absorption in the Austin retail market went into the red for the first time in almost a decade at -44,000 sq. ft. in the second quarter—down from 535,000 sq. ft. in Q1 2020.
Occupancy drops to 95.5%
Net absorption in the Austin retail market went into the red for the first time in almost a decade at -44,000 sq. ft. in the second quarter—down from 535,000 sq. ft. in Q1 2020. Leasing activity—which is comprised of both new leases and renewals—included 226,000 sq. ft. of signed deals, down 70% from this time last year. The overall occupancy rate decreased by 30 basis points quarter-over-quarter, and 60 basis points year-over-year at 95.5%. The retail market saw overall average asking rates increase between 0.5% to 0.9% per sq. ft. over the past year to finish at $21.78 on a triple-net basis. A year ago, average rates were at $21.59.
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.
Supply and demand
The Austin retail market realized negative net absorption—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—for the first time since 2011 at -44,000 sq. ft., while delivering 329,000 sq. ft. during April, May and June of 2020. Of the 840,000 sq. ft. of new construction delivered year-to-date in 2020, 70% has been leased, and of the 1.2 million sq. ft. still in the pipeline, almost half of that space has been spoken for.
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.
Real Capital Analytics data reports quarterly retail sales volume for Q2 2020 in the Greater Austin area at $40.8 million involving eight properties, down compared to this time last year at $168.5 million including 14 properties. The entire capital composition for buyers in 2020 was made up of 100% private investors. For sellers, the majority was about half institutional and half private investors.
Whole Foods opens 35,000 SF in East Austin
The volume of square footage signed during the second quarter—which is comprised of both new leases and renewals—slowed at 353,000 sq. ft., down from the previous quarter’s 644,000 sq. ft., and 920,000 sq. ft. this time last year. One-third of the leasing activity took place in the Northwest submarket, followed by the North Central submarket at 22%. The new Whole Foods Market at Saltillo in East Austin was originally slated to open as one of the Austin-based grocer’s 365 concepts. When the pandemic set in, they changed course to have the store serve as a fulfillment center for other regional stores. At the end of the second quarter, the 35,000 sq.-ft. store at 901 E. Fifth St. opened to walk-in customers for the first time. It’s the seventh Austin-area store and the first new location to open since the Cedar Park location of 365 by Whole Foods opened in 2017, that is also projected to become a regular Whole Foods.
Average asking rents
The retail market in the Austin area saw triple net average asking rents at $21.78 per sq. ft. at the end Q2 2020, up between 0.4%—0.9% during the past year. 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. The CBD ($33.33 PSF) and East/Southeast ($25.14 PSF) submarkets currently have the highest annual overall average rate, followed by the Southwest ($24.91 PSF). With the rising costs to developers that are bringing new projects with high quality space to the market, rental rates could remain elevated.
June home sales rebound across Austin area
Home sales in the Austin-Round Rock MSA rebounded this June with a 9.3% increase year-over-year, which helped hold sales to only a 5.2% decline during the first half of 2020 as the market was impacted by COVID-19, according to the Austin Board of Realtors. Across the five-county MSA in June, residential home sales increased 9.3% year-over-year, and the median price increased by 4.6%. Sales dollar volume also increased 13.1% and pending sales increased by 33.7%. Housing inventory declined 0.9 months to 1.8 months of inventory, demonstrating an extremely competitive and tight market across the region, even as it begins to show signs of improvement.
Director of Research
tel 713 275 9618