Austin’s industrial market holds steady as COVID-19 affects the economy
Austin’s industrial market posted 39,640 square feet of positive net absorption in the second quarter of 2020, highlighting the industrial market’s resilience over other sectors during the COVID crisis. Leasing activity remained strong as a large number of sizeable tenants occupied significant blocks of space over the quarter, including Amazon leasing over 550,000 square feet of space, including a 111,300 square foot renewal. In the Round Rock submarket, the company leased all of Chisholm Trail Trade Center, three full buildings, for a total of 441,520 square feet at North I-35 and Chisholm Trail.
Austin’s citywide average rental rates increased over the quarter, moving up to $11.54 per square foot in Q2 2020 from $10.72 per square foot in Q1 2020. The average citywide Flex/R&D rental also increased, moving up to $14.92 per square foot from $14.54. The average Warehouse/Distribution rental rate increased moderately over the quarter from $9.34 per square foot to $9.56 per square foot.
In all, 883,420 square feet of industrial supply was under construction consisting of eight projects. 695,320 square feet of projects in the development pipeline are scheduled to deliver in the third quarter and 480,700 square feet of that inventory is preleased.
Vacancy & Availability
Austin’s citywide average vacancy rate increased slightly from 8.7% to 8.9% over the quarter. The most significant increase in vacancy occurred in the South submarket, where the vacancy rate increased from 5.3% to 10.8%. The entire 86,300 SF building at 200 East Saint Elmo Road in the South submarket is now vacant and available for lease. Ten out of twelve submarkets also recorded an increase in vacancy in the second quarter.
The largest quarterly decrease in vacancy occurred in the Southeast submarket, falling from 11.8% to 9.7%. A notable lease that helped to reduce the vacancy rate was a 80,249 SF space taken by Amplifier at Park 183 - Building 1 (8015 Burleson Road). No other submarkets reported a decrease in vacancy in the second quarter, but the Northwest submarket broke even with zero absorption.
Absorption & Demand
Austin’s industrial market had twenty-six tenants move into approximately 800,000 SF of industrial space during the second quarter of 2020. One of the larger tenants to lease new space in Q2 was Nadine West. They leased 51,200 SF in the Global Business Park at 1309 Rutherford Lane in May.
The Southeast submarket posted the largest amount of positive net absorption with 283,473 square feet. The Hays County submarket had the second greatest absorption with 67,106 square feet of net absorption. The only other submarket that posted positive absorption was Round Rock with 11,277 square feet.
The submarkets that posted negative net absorption were Central, East, Far Northeast, Far Northwest, North, Northeast and South. The Northeast submarket had the highest negative absorption with 88,115 square feet of space in the second quarter. This can be attributed to 118,789 square feet of space that came to the market, including 72,000 SF at Tech Ridge 4.3B (810 West Howard Lane).
According to CoStar, our data service provider, the citywide average rental rate increased over the quarter from $10.72 per square foot in Q1 2020 to $11.54 per square foot in Q2 2020. Annually, the citywide average rental rate has increased 16.2% from $9.93 in Q2 2019.
The highest average rental rate at the end of Q2 was in the South submarket at $19.82 per square foot annually. The submarket with the lowest average rental rate in Q2 2020 was the Hays County submarket at $6.34 per square foot.
Austin’s industrial leasing activity included 1,364,902 square feet of space in Q2 2020. The bulk of the space leased in the second quarter was leased by Amazon for a total of 552,820 square feet, including the largest lease of the quarter for 441,520 square feet at North I-35 Chisholm Trail.