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Austin Retail

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Net absorption in the Austin retail market returned to positive territory in Q4 2020, at 93,000 sq. ft. This followed Q3’s -191,000 sq. ft. tally—only the second time in almost a decade that the Austin retail market recorded negative net absorption.


EXECUTIVE SUMMARY

Net absorption back in black
Net absorption in the Austin retail market returned to positive territory in Q4 2020, at 93,000 sq. ft. This followed Q3’s -191,000 sq. ft. tally—only the second time in almost a decade that the Austin retail market recorded negative net absorption. For the full-year, net absorption finished 2020 at positive 777,152 sq. ft. Leasing activity—which is comprised of both new leases and renewals—included 304,000 sq. ft. of signed deals, down 63% from this time last year, and less than the previous quarter’s 400,000 sq. ft. The overall occupancy rate decreased slightly by 10 basis points quarter-over-quarter, and 60 basis points year-over-year at 95.8%. The retail market saw overall average asking rates drop 0.8% per sq. ft. over the past year to finish at $21.41 on a triple-net basis. A year ago, average rates were at $21.58.

Economic indicators
The Federal Reserve Bank of Dallas reported that the Austin economy slowed in November as the Austin Business-Cycle Index decelerated due to an increase in the unemployment rate. However, job growth was positive in most industries, and regional consumer spending since mid-July continues to hold at pre-COVID-19 levels. Austin’s unemployment rate increased to 6.3% in November, while the state’s rate rose to 8.1%, and the nation’s rate fell to 6.7%. The rise in metro and state unemployment rates was largely due to an increase in individuals reentering the labor force seeking jobs. Austin payrolls grew an annualized 7.4%, or 19,320 net jobs, in the three months ending in November. Financial activities led job expansion (25.5%, or 4,000 jobs). Financial activities and professional and business services were the only sectors to post positive job growth for the first 11 months of the year.


MARKET OVERVIEW

Supply and demand
The Austin retail market realized 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— of 93,000 sq. ft. in Q4 2020. During 2020, a total of 1.4 million sq. ft. was delivered to the market with almost 75% of that space occupied. Of the 1.1 million sq. ft. still in the pipeline, about half of that space is available.

Investment sales
Real Capital Analytics data reports quarterly retail sales volume for Q4 2020 in the Greater Austin area at $123.3 million involving 12 properties, down compared to this time last year at $281.0 million including 23 properties. The capital composition for buyers in 2020 was made up almost entirely of private investors at 98.4%, and for sellers, the majority was 64.1% private investors and 27.5% institutional.

Average asking rents
The retail market in the Austin area saw triple net average asking rents at $21.41 per sq. ft. to end 2020, down 0.8% from this time last 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 ($28.43 per sq. ft.) and East/ Southeast ($25.70 per sq. ft.) submarkets currently have the highest annual overall average rate, followed by the Northwest ($24.18 per sq. ft.).

Austin-area real estate market experiencing extraordinarily high demand
Despite the impact of the coronavirus pandemic, 2020 was an exceptional year for the Austin-area housing market, the Austin Board of Realtors reported. Last year’s 40,165 sales were an all-time record, and an 8.4% increase from 2019. $344,000 marked a record for the region’s median home-sales price. The annual median price was a 9.2% increase from 2019. Within Austin’s city limits, annual sales totaled 12,745—also a record, and a 1.7% increase over 2019. Another record was the $420,000 median price for Austin sales, up 12% from 2019’s median price. These figures represent a strong finish to a strong year.


Leta Wauson
Director of Research
leta.wauson@naipartners.com
tel 713 275 9618

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