Austin’s industrial market sees growth despite the effects of COVID-19
Austin’s industrial market posted 887,476 square feet of positive net absorption in the third 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 3-Way Logistics leasing over 130,000 square feet of space in the Round Rock submarket. The Round Rock submarket had five leases over 10,000 square feet signed during the quarter for a total of 219,382 square feet of space.
Austin’s citywide average rental rates decreased over the quarter, sliding down to $11.31 per square foot in Q3 2020 from $11.54 per square foot in Q2 2020. The average citywide Flex/R&D rental rate increased, moving up to $15.07 per square foot from $14.92. The average Warehouse/Distribution rental rate decreased moderately over the quarter from $9.56 per square foot to $9.45 per square foot.
In all, 2,349,878 square feet of industrial supply was under construction consisting of six projects. 815,820 square feet of projects in the development pipeline are scheduled to deliver in the fourth quarter and 388,903 square feet of that inventory is pre-leased.
Vacancy & Availability
Austin’s citywide average vacancy rate decreased from 9.8% to 8.2% over the quarter. The most significant decrease in vacancy occurred in the Hays County submarket, where the vacancy rate decreased from 11.8% to 9.6%. A notable lease that helped to reduce the vacancy rate was a 34,750 SF space taken at 1300 Goforth Road. Other submarkets that reported a decrease in vacancy included North, Northeast, Northwest and Southeast.
The largest quarterly increase in vacancy occurred in the Far Northeast submarket, rising from 6.5% to 9.0%. Some of that increase can be attributed to a total of 50,400 SF at Springbrook Corporate Center 10 (828 New Meister Lane) that was vacated in the third quarter. Six out of twelve submarkets also recorded an increase in vacancy in the third quarter.
Absorption & Demand
Austin’s industrial market had twenty-one tenants move into approximately 1,660,000 square feet of industrial space during the third quarter of 2020. One of the larger tenants to lease new space in Q3 was Omni Logistics, Inc. They leased 126,364 square feet at Southpark Commerce Center Phase III, Building 3 in July.
The Hays County submarket posted the largest amount of positive net absorption with 602,800 square feet. The Southeast submarket had the second greatest absorption with 341,445 square feet of net absorption. The only other submarkets that posted positive absorption were North and Northwest with 57,865 and 42,466 square feet respectively.
The submarkets that posted negative net absorption were Central, East, Far Northeast, Far Northwest, Northeast, Round Rock and South. The Far Northeast submarket had the highest negative absorption with 82,573 square feet of space in the third quarter. This can be attributed to 116,497 square feet of space that came to the market, including 33,600 square feet at Springbrook Corporate Center Building 10 (828 New Meister Lane).
According to CoStar, our data service provider, the citywide average rental rate decreased over the quarter from $11.54 per square foot in Q2 2020 to $11.31 per square foot in Q3 2020. Annually, the citywide average rental rate has increased 10.3% from $10.14 in Q3 2019.
The highest average rental rate at the end of Q3 was in the Northwest submarket at $16.77 per square foot annually. The submarket with the lowest average rental rate in Q3 2020 was the Hays County submarket at $6.41 per square foot.
Austin’s industrial leasing activity included 1,085,259 square feet of space in Q3 2020. Of the 26 leases over the quarter, the largest was a 120,438 square foot lease for 3-Way Logistics 116 East Old Settlers Boulevard. The largest lease renewal was signed by Uplift Desk for a 35,000 square foot space in the Far Northeast submarket.