Austin’s industrial market sees a jump in new construction and absorption
Austin’s industrial market posted 116,788 square feet of positive net absorption in the third quarter of 2019. Activity remained high as a large number of sizeable tenants occupied significant blocks of space over the quarter including RBT Industries, a flooring manufacturer. They moved into 24,000 square feet at 800 Interchange Boulevard (Interchange East - Phase II) in the East submarket.
Austin’s citywide average rental rates increased moderately over the quarter, moving up to $10.22 per square foot in Q3 2019 from $10.17 per square foot in Q2 2019. The average citywide Flex/R&D rental rate decreased moderately to $13.47 per square foot from $13.65. The average Warehouse/Distribution rental rate increased over the quarter from $8.48 per square foot to $8.90 per square foot.
In all, 1,631,056 square feet of industrial supply was under construction consisting of twenty-three projects. 391,628 square feet of projects in the development pipeline are scheduled to deliver in the fourth quarter and 144,088 square feet of that inventory is pre-leased.
Vacancy & Availability
Austin’s citywide average vacancy rate increased from 8.5% to 8.6% over the quarter, due in part to new developments posting vacant space. The most significant increase in vacancy over the quarter occurred in the Central submarket, one of the smallest industrial submarkets at only 1,081,796 square feet, where the vacancy rate increased from 2.2% to 4.2%. The Far Northeast, Hays County, North, Round Rock and South submarkets also recorded an increase in vacancy in the third quarter.
The largest quarterly decrease in vacancy occurred in both the Far Northwest and Northwest submarkets, falling 1.8% in each. The Far Northwest submarket’s vacancy fell from 2.5% to 0.7%, while the Northwest’s decreased from 4.8% to 3.0%. Other submarkets reporting a decrease in vacancy include the East, Northeast, Southeast and Southwest submarkets.
Absorption & Demand
Austin’s industrial market posted 116,788 square feet of positive net absorption in Q3 2019. Twenty-three tenants moved into approximately 595,000 SF of industrial space during the third quarter of 2019. One of the larger tenants to occupy new space in Q3 was RBT Industries. They moved into their new 24,000 SF space at Interchange East - Phase II (800 Interchange Boulevard) in July.
The Southeast submarket posted the largest amount of positive net absorption with 233,143 square feet. The East submarket had the second greatest absorption with 52,265 square feet of net absorption. The other submarkets that posted positive absorption includes Far Northwest, Northeast, Northwest and Southwest.
The submarkets that posted negative net absorption were Central, Far Northeast, Hays County, North, Round Rock and South. The North submarket had the highest negative absorption with 144,037 square feet of negative net absorption in the third quarter. This can be attributed to 427,511 square feet of space that came to the market.
According to CoStar, our data service provider, the citywide average rental rate increased over the quarter from $10.17 per square foot in Q2 2019 to $10.22 per square foot in Q3 2019. Annually, the citywide average rental rate has increased 3.5% from $9.87 in Q3 2018.
The highest average rental rate at the end of Q3 was in the South submarket at $15.71 per square foot annually. The submarket with the lowest average rental rate in Q3 2019 was the Hays County submarket at $5.72 per square foot.
Austin’s industrial leasing activity included 392,939 square feet of space in Q3 2019. The bulk of the leases signed in the third quarter were in the North submarket, totaling 93,538 square feet. The largest new lease was signed by Texas Beauty Labs for 44,386 square feet at Settlers Crossing Phase I -Building I (900 East Old Settlers Boulevard) in the Round Rock Industrial submarket.