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Q2 2017 | Austin Industrial | Market Report

Austin’s industrial market took another hit to it’s net absorption in Q2 2017, posting 226,896 SF of negative net absorption. There were a handful of large block tenants who moved out that contributed to the negative net absorption. Though the absorption fell and vacancy increased, the rental rates throughout the market are still finding a way to increase.

Looking forward, there are at least 20 smaller blocks of space being filled by tenants, in Q3 2017. There is also over half a million square feet of new product set to deliver in Q3 2017 with another half a million set to deliver in Q4.

Austin’s citywide average rental rates increased over the quarter from $10.70 per SF NNN to $11.08 per SF NNN. Warehouse/ Distribution rental rates increased slightly to $8.27 per SF NNN from $8.24 per SF, and citywide Flex/R&D rental rates increased to $14.09 per SF NNN from $13.86 average rate in Q1 2017.

Austin’s industrial market saw nine buildings deliver in the second quarter, totaling 458,560 SF. The two largest buildings completed in Q2 2017 were located at 5811 Trade Center Drive, buildings 8 and 9, which are each 77,430 SF and vacant. The buildings located at 7307 Burleson Road lots 2 and 3, also delivered and were both 100% leased at the time of delivery.

In Q2 2017, 1,055,505 square feet of industrial supply was under construction, including eight new projects totaling 843,014 square feet. One of the new projects, 4100 Smith School Road, is a buildto- suit project for Data Foundry and set to deliver in October of this year.

Vacancy & Availability

Austin’s citywide average vacancy rate increased from 8.0% to 9.0% over the quarter. The largest quarterly spike in vacancy occurred in the Far Northeast submarket, where it increased from 8.2% in Q1 2017 to 14.3% in Q2 2017. Other submarkets that showed an increase in vacancy include the East, Hays County, North, Northeast, Northwest, Southeast, and Southwest submarkets. 

The largest decrease in vacancy over the quarter occurred in the Round Rock submarket where vacancy fell from 11.4% to 6.5%. Other submarkets that saw a decrease in vacancy were Central, Far Northwest, and South.

Rental Rate & Vacancy Percentage

Absorption & Demand

Austin’s industrial market saw a third consecutive quarter of negative net absorption, which is the first time Austin saw three consectutive quarters of negative net absorption since late 2008 and early 2009. Year to date, absorption for 2017 is currently 884,335 SF of negative net absorption. Though it has been a tough year so far, next quarter we know of at least22 tenants will be moving into 449,409 SF of industrial space in the Austin market.

According to CoStar, one of the tenants moving out of large blocks of space is Texas Linen Company, Ltd. who moved out of 123,607 SF space in the East submarket.

The North submarket posted the largest amount of negative net absorption, for the second quarter in a row, with 226,022 square feet. The East submarket wasn’t far behind with 153,994 square feet of negative net absorption.

The submarkets that posted positive net absorption were Central, Far Northwest, Round Rock, South, and Southeast. The Southeast submarket topped the list with 191,057 square feet of positive net absorption. This was a large swing from the 154,010 square feet of negative net absorption the Southeast submarket recorded last quarter.

Rental Rates

According to CoStar, our data service provider, the citywide average rental rate increased over the quarter to an average rate of $11.08 per SF NNN from $10.70 per SF NNN in Q1 2017. Annually, citywide average rental rates have risen 12.2 percent, since Q2 2016.

The highest average rental rate at the end of Q2 was in the East submarket at $16.77 per SF NNN. The East submarket also had the largest increase in rental rates over the quarter with rates rising from $15.82 per SF to $16.77.

Leasing Activity 

Austin’s industrial leasing activity was just under half a million square feet in Q2 2017. The bulk of the leases signed in the second quarter were in the North submarket, totaling 142,488 square feet. The largest new lease signed was a 36,711 square foot lease at 106 Old Settlers Boulevard by an unknown tenant.

Q2 2017 Top Industrial Lease Transactions

106 Old Settlers Blvd Round Rock 36,771 Unknown Apr-17
7701 Metropolis Dr
Southeast 28,800 Seton Healthcare Apr-17
9200 Waterford Centre Blvd  North  28,050  Alen Corporation  Jun-17 
1100 E Howard Ln  Far Northeast  25,600  Unknown  May-17 
5910 Techni Center Dr  East  25,505 Kasita  Apr-17 
2500 McHale Ct  North  21,600  Winding Road Racing  May-17 
2010 Centimeter Cir  North  21,600  Unknown  May-17 
600 Center Ridge Dr  Northeast  21,600  Dynamic Manufacturing  Apr-17 
1320 Arrow Point Dr  Cedar Park  20,550 Unknown  May-17 
2013 Centimeter Cir  North  20,148  Hinkle Insulation & Drywall  May-17 
6110 Trade Center Dr  Southeast  18,300  Unknown3  May-17 
8291 Springdale Rd  East  18,000  TF Final Mile  Apr-17 
4501 S Plesant Valley Rd  Southeast  16,530  Unknown  Apr-17 
6231 E Stassney Ln  Southeast  16,000  PUREWRX  May-17 
1 Renewal
2 Expansion
3 Sublease

Q2 2017 Industrial Under Construction - 20,000 SF or greater

605 W Howard Ln - Bldg 3.1 Northeast 116,211 0.0% Live Oak-Gottesman/Prologis Jul-17
5811 Trade Center Dr - Building 10
Southeast 96,280 0.0% VanTrust Real Estate, LLC Jul-17
6320 Stassney Ln - Building 2  Southeast  142,800  0.0%  TA  Jul-17 
6320 Stassney Ln - Building 1  Southeast  54,850  50.0%  TA  Jul-17 
721 Rohde Rd  Hays County  70,000  0.0%  Uknown  Sep-17 
0 Warehouse Dr  Hays County  25,200  0.0%  Uknown  Sep-17 
4100 Smith School Rd  Southeast  195,000  100.0%  Data Foundry  Oct-17 
2301 E Saint Elmo Rd - Building 1  Southeast  73,832  0.0%  Ridge Development  Nov-17 
2301 E Saint Elmo Rd - Building 2  Southeast  119,100  0.0%  Ridge Development  Nov-17 
2301 E Saint Elmo Rd - Building 3  Southeast  162,232  53.8%  Ridge Development  Nov-17 

Q2 2017 Austin Industrial Highlights

Click here to download the report as a PDF.

Job Growth & Unemployment (Not Seasonally Adjusted)

Austin 2.9% 3.2%
Texas 4.3% 4.4%
U.S. 4.5% 4.1%
Austin 2.8% 27.4K
Texas 2.2% 268.1K
U.S. 1.6% 2.26M

Sales Activity

Sales Activity Q2 2017 
No. of Properties: 15
Total SF: 601,116 SF
Average $/SF: $84/SF
Average Cap Rate:  7.3%

210 E Saint Elmo Road

Gramercy Property Trust, Inc. purchased the 102,194 SF distribution building from Veritiv Corporation, in May, for $9,700,000. The property was 100% occupied at the time of sale.

2310 Donley Drive

The 27,400 SF industrial distribution building was purchased in April of 2017 by Boost Logic, for $72.87 per SF, from Jaffery Holding LLC.