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Q1 2017 | Austin Industrial | Market Report

Austin’s industrial market took a big hit during Q1 2017, posting 622,956 SF of negative net absorption. This is the largest loss since Q1 of 2014, when the negative net absorption hit 771,075 SF. The rapid increase in rental rates seen in the past three years has slowed and vacancy rates are rising.

Most of this negative absorption, reported by CoStar (our data provider), can be attributed to two large tenants being reported as moving out of their spaces, but it is rumored that they may renew their leases in the coming months.

Austin’s citywide average rental rates decreased over the quarter from $10.57 per SF NNN to $10.37 per SF NNN. Warehouse/Distribution rental rates increased to $7.66 per SF NNN from $7.55 per SF, and citywide Flex/R&D rental rates increased to $13.93 per SF NNN, just $0.14 higher than the $13.79 average rate in Q4 2016.

Austin’s industrial market saw just five buildings deliver in the first quarter, totaling 742,165 SF. The largest of the five buildings is 10095 US Highway 290 East, the 500,000 SF Capitol Wright Distribution Center, which is 100% leased.

In Q1, 728,440 square feet of industrial supply was under construction, including two new projects totaling 58,400 square feet. Both of these projects that began construction in Q1, are 100% preleased and, according to CoStar, set to deliver in June.

Over the last year, Austin’s unemployment rate has increased marginally from 3.0% to 3.7%. Austin’s unemployment rate is still well below the U.S. and Texas unemployment rates, of 4.7% and 4.9%, respectively.

Vacancy & Availability

Austin’s citywide average vacancy rate increased from 6.5% to 8.0% over the quarter. The largest spike in vacancy over the quarter occurred in the Central submarket, where it increased from 10.6% in Q4 2016 to 13.1% in Q1 2017. Other submarkets that showed an increase in vacancy include East, North, Northeast, Round Rock and Southeast.

The largest decrease in vacancy over the quarter occurred in the Northwest submarket where vacancy fell from 4.9% to 2.3%. Other submarkets that saw a decrease in vacancy were Far Northwest, Hays County and South.

Rental Rate & Vacancy Percentage

Absorption & Demand

Austin’s industrial market saw a second consecutive quarter of negative net absorption for the first time since Q2 and Q3 of 2010. Unfortunately, this negative net absorption is hitting a little harder than it did in 2010. The first quarter of 2017 saw 622,956 square feet of negative absorption, which is more than the two negative quarters in 2010 combined.

This may just be a bounce back from the record setting 1,342,905 square feet of positive net absorption, in Q3 2016. The North submarket posted the largest amount of negative net absorption with 322,406 square feet. The Southeast and East submarkets weren’t far behind with 172,310 and 100,179 square feet of negative net absorption, respectively.

The submarkets that posted positive net absorption were Northwest, Hays County, Far Northwest and South. The Northwest submarket topped the list with 68,880 square feet of positive net absorption. This was a large swing from the 5,000 square feet of negative net absorption the Northwest submarket recorded in Q4 2016.

Rental Rates

According to CoStar, our data service provider, the citywide average rental rate decreased slightly over the quarter to an average rate of $10.37 per SF NNN from
$10.57 per SF NNN in Q4 2016. Since Q1 2016, citywide average rental rates have risen 8.3 percent.

The highest average rental rate at the end of Q1 was in the East submarket at $15.82 per SF NNN. The South submarket had the largest increase in rental rates over the quarter with rates rising from $10.29 per SF in Q4 to $11.96 in 2017.

Leasing Activity 

Austin’s industrial leasing activity was just over 1.32 million square feet in Q1 2017. The bulk of the major leases signed in the first quarter were in the Southeast submarket, totaling 87,238 square feet. The largest new lease signed was a 48,038 square foot lease signed at 12555 Harris Branch Parkway by an unknown tenant.

Q1 2017 Top Industrial Leases

12555 Harris Branch Pky Far Northeast 48,038 Unknown Mar-17
2325 Ben White Blvd E Southeast 40,957 Austin Warehouse & Distribution3 Jan-17
6110 Trade Center Dr Southeast 24,300 Unknown Mar-17
600 E Industrial Blvd South 23,414 Josco Feb-17
8301 Springdale Rd East 18,000 Dynamex4 Jan-17
611 E Braker Ln North/Domain 13,800 Unknown Jan-17
9516 Neils Thompson Dr North 12,909 Illusions Rentals Mar-17
2020 Rutland Dr North 11,437 Unknown Jan-17
3913 Todd Ln Southeast 11,250 Unknown Jan-17
2101 E St. Elmo Rd Southeast 10,731 Unknown Mar-17
1 Renewal
2 Expansion
3 Sublease
4 Colliers International Transaction

Q1 2017 Industrial Under Construction - 20,000 SF or Greater

Harris Ridge Business Center- Bldg 1
1100 E Howard Ln
Far Northeast 51,200 50.0% HPI Real Estate  Apr-17
7307 Burleson Rd - Lot 6 Southeast 30,000 0.0% Industrial Group Southwest, LLC Apr-17
7307 Burleson Rd - Lot 2 Southeast 35,000 0.0% Industrial Group Southwest, LLC Apr-17
7307 Burleson Rd - Lot 3 Southeast 35,000 0.0% Industrial Group Southwest, LLC Apr-17
7307 Burleson Rd - Lot 4 Southeast 40,000 0.0% Industrial Group Southwest, LLC Apr-17
7307 Burleson Rd - Lot 5 Southeast 50,000 0.0% Industrial Group Southwest, LLC Apr-17
7307 Burleson Rd - Lot 7 Southeast 62,500 50.0% Industrial Group Southwest, LLC Apr-17
5811 Trade Center Dr - Building 8 Southeast 77,430 0.0% VanTrust Real Estate, LLC Apr-17
5811 Trade Center Dr - Building 9 Southeast 77,430 0.0% VanTrust Real Estate, LLC May-17
3739 Ed Bluestein Blvd - Building 4 East 20,000 100.0% Development 2000, Inc. Jun-17
I 35 & Bratton Ln - Bldg 5 North 38,400 100.0% Unknown Jun-17
605 W Howard Ln - Bldg 3.1 Northeast 115,200 0.0% Live Oak-Gottesman Jun-17
5811 Trade Center Dr - Building 10 Southeast 96,280 0.0% VanTrust Real Estate, LLC Jun-17

Click here to download the report as a PDF.

Job Growth & Unemployment (Not Seasonally Adjusted)

Austin 3.0% 3.7%
Texas 4.6% 4.9%
U.S. 4.9% 4.7%
Austin 2.8% 27.4K
Texas 1.8% 218.8K
U.S. 1.7% 2.36M

Sales Activity

Sales Activity Q1 2017 
No. of Properties: 21
Total SF: 1,522,975 SF
Average $/SF: $60/SF
Average Cap Rate:  10.1%

4801 Freidrich Lane

Colony Northstar, Inc. purchased the 194,233 SF warehouse building from Southpark Commerce Center LLC., in January, for an undisclosed price. The property was 100% occupied at the time of sale. This building was one of three properties purchased in a portfolio sale.

11000 N I-35 - Building D

The 139,920 SF industrial warehouse was purchased in January of 2017 by BH Properties LLC, for $60.80 per SF, from Golfsmith. This was one of 4 properties
bought by BH Properties LLC in a portfolio acquisition.