Austin’s industrial absorption takes a hit with the arrival of COVID-19
Austin’s industrial market posted 288,393 square feet of negative net absorption in the first quarter of 2020, with 186,904 coming to the market at NorthTech Business Center (4616 West Howard Lane). Leasing activity remained high as a large number of sizeable tenants occupied significant blocks of space over the quarter, including Amazon leasing Park 35 (2956 Main Street). The building consists of 305,768 square feet and is located in the Southeast submarket.
Austin’s citywide average rental rates increased over the quarter, moving up to $10.72 per square foot in Q1 2020 from $10.13 per square foot in Q4 2019. The average citywide Flex/R&D rental also increased, moving up to $14.54 per square foot from $13.33. The average Warehouse/Distribution rental rate increased moderately over the quarter from $9.14 per square foot to $9.34 per square foot.
In all, 1,067,465 square feet of industrial supply is under construction consisting of eleven projects. 830,765 square feet of projects in the development pipeline are scheduled to deliver in the second quarter and 133,346 square feet of that inventory is preleased.
Vacancy & Availability
Austin’s citywide average vacancy rate increased from 8.0% to 8.6% over the quarter. The most significant increase in vacancy over the quarter occurred in the Central submarket, where the vacancy rate increased from 4.3% to 8.6%. The entire 23,666 SF building at 622 Morrow Street in the Central submarket is now vacant and available for sublease. The Far Northeast, Far Northwest, Hays County, North, Round Rock and Southeast submarkets also recorded an increase in vacancy in the first quarter.
The largest quarterly decrease in vacancy occurred in the Southwest submarket, falling from 9.6% to 2.8%. As the smallest industrial submarket, all it took to reduce the vacancy rate so much was a 2,500 SF space being leased. Other submarkets reporting a decrease in vacancy include the East, Northeast, Northwest and South submarkets.
Absorption & Demand
Austin’s industrial market had twelve tenants move into approximately 247,814 SF of industrial space during the first quarter of 2020. One of the larger tenants to occupy new space in Q1 was Flitch. They moved into their new 36,610 SF space at 1045 Reinli Street in February.
The Northeast submarket posted the largest amount of positive net absorption with 144,806 square feet. The Northwest submarket had the second greatest absorption with 58,719 square feet of net absorption. The other submarkets that posted positive absorption include East, South and Southwest.
The submarkets that posted negative net absorption were Central, Far Northeast, Far Northwest, Hays County, North, Round Rock and Southeast. The Southeast submarket had the highest negative absorption with 205,733 square feet of negative net absorption in the first quarter. This can be attributed to 458,645 square feet of space that came to the market, including 126,364 SF at Southpark Commerce Center Phase III - Building 3 (4801 Freidrich Lane).
According to CoStar, our data service provider, the citywide average rental rate increased over the quarter from $10.13 per square foot in Q4 2019 to $10.72 per square foot in Q1 2020. Annually, the citywide average rental rate has increased 3.5% from $10.35 in Q1 2019.
The highest average rental rate at the end of Q1 was in the Northwest submarket at $17.48 per square foot annually. The submarket with the lowest average rental rate in Q1 2020 was the Hays County submarket at $5.49 per square foot.
Austin’s industrial leasing activity included 1,405,329 square feet of space in Q1 2020. The bulk of the leases signed in the first quarter were in the Southeast submarket, totaling 527,275 square feet. The largest new lease was signed by Amazon for 305,768 square feet at Park 35 (2956 Main Street) in the Southeast Industrial submarket. Colliers International represented the landlord in that transaction.