Austin’s industrial market sees a slowdown in new construction, but more leases
Austin’s industrial market posted 80,820 square feet of negative net absorption in the second quarter of 2019. Activity levels remained high as a large number of sizeable tenants occupied significant blocks of space over the quarter including Ceva Logistics, a global logistics and supply chain company that moved into 36,000 square feet at 8606 Wall Street in the Northeast submarket.
Looking forward, twenty blocks of space over 10,000 SF will be occupied by new tenants in the third quarter of 2019. One of these tenants is FedEx, who is taking 89,332 square feet at 4500 South Pleasant Valley Road in the Southeast submarket.
Austin’s citywide average rental rates decreased moderately over the quarter, moving down to $10.17 per square foot in Q2 2019 from $10.57 per square foot in Q1 2019. The average citywide Flex/R&D rental rate decreased moderately to $13.65 per square foot from $14.14. The average Warehouse/Distribution rental rate decreased slightly over the quarter from $8.61 per square foot to $8.40 per square foot.
In all, 951,431 square feet of industrial supply was under construction consisting of fourteen projects. 115,351 square feet of projects in the development pipeline are scheduled to deliver in the third quarter and 8,000 square feet of that inventory is pre-leased..
Vacancy & Availability
Austin’s citywide average vacancy rate increased from 8.5% to 8.8% over the quarter, due in part to new deliveries. The most significant increase in vacancy over the quarter occurred in the Southeast submarket where the vacancy rate jumped from 11.2% to 12.0%. The East, Far Northwest, Hays County, North, Northeast, Round Rock and Southeast submarkets also saw an increase in vacancy in Q2 2019.
The largest quarterly decrease in vacancy occurred in the Southwest submarket, where it fell from 7.6% in Q1 2019 to 4.6% in Q2 2019. Other submarkets reporting a decrease in vacancy include the Central, Far Norheast, South and Southwest submarkets.
Absorption & Demand
Although Austin’s industrial market posted negative net absorption of 80,820 square feet in Q2 2019, more than twenty tenants moved into over 460,000 SF of industrial space during the second quarter of 2019. One of the tenants that moved into space in Q2 included TireHub, LLC relocating into 40,467 square feet at Heritage Crossing - Building 7 (2300 Scarbrough Drive) in the North submarket.
The Far Northeast submarket posted the largest amount of positive net absorption with 36,794 square feet. The South submarket had the second greatest absorption with 29,737 square feet of positive net absorption. Other submarkets that posted positive absorption includes Central, Hays County, Northwest, Round Rock and Southwest.
The submarkets that posted negative net absorption were East, Far Northwest, North, Northeast and Southeast. The Southeast submarket had the highest negative absorption with 94,718 square feet of negative net absorption in the second quarter. This can be attributed to 313,081 square feet of space that came to the market, including a 57,557 square foot space at 4509 Freidrich Lane.
According to CoStar, our data service provider, the citywide average rental rate decreased over the quarter from $10.57 per square foot in Q1 2019 to $10.17 per square foot in Q2 2019. Annually, the citywide average rental rate has increased 4.9% from $9.69 in Q2 2018.
The highest average rental rate at the end of Q2 was in the South submarket at $14.35 per square foot annually. The submarket with the lowest average rental rate in Q2 2019 was the Hays County submarket at $5.71 per square foot.