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Q3 2016 | Austin Industrial | Market Report

Austin’s industrial market continues to tighten up. The asking rents continue to increase, the vacancy rates are still falling and construction is strong. The average rental rate increased, yet again, hitting $10.58. The vacancy rate dropped 1% from last quarter and sits at 6.2%. There is over one million square feet under construction and almost half of that is new construction. On top of all of these factors, positive net absorption jumped to 1,507,758 square feet.

Austin’s citywide average rental rates increased over the quarter from $9.83 per SF NNN to $10.58 per SF NNN, the highest it has ever been. Warehouse/Distribution rental rates slightly decreased to $7.89 per SF NNN, while Citywide Flex/R&D rental rates jumped from $11.29 to $13.39 per SF NNN over the quarter.

The largest of the four buildings to deliver this quarter was Amazon’s new 855,000 SF distribution center, located in the Hays County submarket. It was a majority of the 1,093,400 total square feet that delivered.

Vacancy & Availability

Austin’s citywide average vacancy rate dropped slightly from 7.3% to 7.1% over the quarter from 7.4% to 7.7%. The largest spike in vacancy over the quarter occurred in the Southwest submarket, where it increased from 3.6% in Q1 to 8.3% in Q2 due to 10,000 sqaure feet of sublease space becoming available at Oak Hill 1. 

The largest decreases in vacancy over the quarter occurred in the Far Northwest submarket where vacancy fell from 7.9% to 0.8%, and in the Northeast submarket where vacancy dropped from 6.2% to 4.9%. 

Despite a decline in new construction, rising rental rates and a slight decrease in the vacancy rate prove that Austin’s industrial market continues to grow.

In Q3, over one million square feet of industrial supply was under construction, including seven new projects totaling 409,595 square feet. One of the projects is a 115,200 square foot building at 605 W Howard Ln in the Northeast submarket.

As Austin’s population continues to increase, the unemployment rate is still well below the U.S. and Texas’ unemployment rate at 3.5%. Over the last year, Austin’s unemployment rate has increased just 0.1% from 3.4% to 3.5%.

Rental Rate & Vacancy Percentage

Absorption & Demand

Even after delivering 1,093,400 square feet, the absorption for the Austin industrial market made a huge jump in the third quarter. 

Austin’s industrial market posted 1,507,758 square feet of positive net absorption in the third quarter, up from 112,373 square feet of positive net absorption in the second quarter. The Hays County submarket posted the largest amount of positive absorption, 986,4320 square feet, due to Amazon’s 100% pre-leased building delivering in September.

The Northeast submarket posted the largest negative net absorption of 71,908 square feet, and The Far Northwest submarket posted the second highest negative net absorption of 21,250 square feet.

Rental Rates

According to CoStar, our data service provider, the citywide average rental rate increased over the quarter to an average rate of $10.58 per SF NNN from $9.83 per SF NNN in Q2. In one year, citywide average rental rates have risen by 12.9%.

The highest average rental rate at the end of Q3 was in the Northwest submarket at $16.44 per SF NNN. The East submarket had the largest increase in rental rates over the quarter with rates rising from $10.02 per SF NNN to $15.18 per SF NNN.

Leasing Activity 

Austin’s industrial leasing activity was just under 600,000 square feet in Q3 2016. The bulk of the major leases signed in the second quarter were in the North submarket, totaling 418,000 square feet. The largest lease signed was a 104,146 square foot renewal signed by Daryl Flood Logistics. Intelligent Logistics, who will occupy 80,000 square feet at 1100 E Howard Ln in the North submarket, also signed this quarter.

Q3 2016 Top Industrial Leases

15833 Long Vista Drive
104,146 Daryl Flood Logistics1 Jul-16
1100 E Howard Ln
80,000 Intelligent Logistics Jul-16
12555 Harris Branch Parkway
Far Northeast
48,037 Schenker Inc1 Jul-16
10200 McKalla Pl North
37,800 Resale Resource1 Aug-16
11700 Stonehollow Dr North 33,900 Goodman1 Sep-16
16310 Bratton Ln North
33,600 Abrams and Company Publishers1 Sep-16
3815 A Jarrett Way
Manna Freight Systems Inc
2315 Rutland Drive North
26,526 Ferguson Enterprises Inc1 Aug-16
6301 E Stassney Ln Southeast 25,600 Aspire Food Group  Sep-16
12317 Technology Blvd Northwest 24,207 Undisclosed Jul-16
1 Renewal 
2 Expansion
3 Sublease

Q3 2016 Industrial Under Construction - 20,000 SF or Greater

2121 Scarbrough Dr. - Bldg 4 North 80,340 63.2% Clarion Sep-16
955 County Road 118
Georgetown 48,215 0.0% HOWMAT Development LP Nov-16
7307 Burleson Rd - Lot 7
Industrial Group Southwest, LLC
Capitol Wright Distribution Center
Highway 290 East
East 500,000 100.0% Capitol Wright Distributing
Harris Ridge Business Center- Bldg 1
1100 E Howard Ln
Far Northeast 51,200 50.0% HPI Real Estate Jan-17
7307 Burelson Rd - Action Gypsum Supply Southeast
30,000 100.0% Industrial Group Southwest, LLC
4717 Priem Ln - Bldg 8   Far Northeast 20,000 75.0% Tack Development Ltd Dec-16
7307 Burleson Rd - Lot 2 Southeast 35,000 0.0% Industrial Group Southwest, LLC
7307 Burleson Rd - Lot 3  Southeast 35,000 0.0%  Industrial Group Southwest, LLC
7307 Burleson Rd - Lot 4 Southeast 40,000 0.0% Industrial Group Southwest, LLC
7307 Burleson Rd - Lot 5 Southeast 50,000 0.0% Industrial Group Southwest, LLC
401 Center Ridge Dr - Bldg 2.1 Northeast 84,395 0.0% Prologis Jan-17
605 W Howard Ln - Bldg 3.1 Northeast 115,200 0.0% Prologis Jan-17

Click here to download the report as a PDF.

Job Growth & Unemployment (Not Seasonally Adjusted)

Austin 3.4% 3.5%
Texas 4.6% 5.0%
U.S. 5.0% 5.2%
Austin 3.2% 30.9K
Texas 1.6% 186.9K
U.S. 1.7% 2.4M

Sales Activity

Sales Activity Q3 2016 
No. of Properties: 12
Total SF: 2,254,176 SF
Average $/SF: $75/SF
Average Cap Rate:  7.4%

106269 Metric Boulevard

An investor purchased the 14,550 SF manufacturing building from Austin Material Handling Company, in September, for $1,716,900 (or $118 per SF). The property was 100% occupied at the time of sale.

3830 Promontory Point Drive

The 47,729 SF industrial warehouse was purchased in July of this year by Jimmy Nassour Law Office, for an undisclosed price, from Capital Beverage. Capitol Beverage bought this building in 2015 and sold it once construction on their new facility was finished.