Boots On The Ground
Commentary by Chase Clancy | Associate Vice President | Austin
Our “Boots on the Ground” viewpoint is the voice of our experts, who have broken down the market data and compared it to what they are seeing for themselves. This is their take on what the numbers actually mean for the Austin industrial market.
It seems that we’re all ready to leave 2020 behind us. No year in recent memory has so swiftly upended the mundane parts of our lives, leaving us to miss the boring parts of “normal life” that we had once taken for granted.
Such monumental shifts in human behavior leveled incredible impacts on industrial demand globally, while in Austin we are benefiting from an additional set of extenuating factors that have drastically increased demand for industrial space.
E-Commerce and the Amazon Effect
With an accelerated shift in consumer purchasing to e-commerce platforms, we’ve seen an explosion of demand from 3PLs and fulfillment companies looking to keep up in 2020. This story would not be complete without mention of Amazon, whose local share of industrial real estate continues to grow at a blistering pace. Closing 2019, Amazon boasted approximately 1.23M SF of space between San Marcos and Georgetown. At the end of 2020, this has nearly quintupled to 6.08M SF of space occupied or under construction and at least another 1M SF in construction planning. These spaces include both spec leasing and build-to-suits like the 3.8M SF facility currently under construction in Pflugerville. Most importantly, Amazon absorbed more than 1M SF of shell space in the Austin market in 2020, which is an incredible sum considering our total market-wide absorption was approximately 1.4M SF in 2019 and 1.8M SF in 2018.
Small Boxes, Meet Big Tenants
In years past, and in many ways still today, the typical “bread-and-butter” Austin tenant was the plethora of 20,000-75,000 SF users that have long populated Austin’s industrial space, but 2020 kicked off a rapid change that we expect to continue. While the bread-and-butter tenants largely took a wait-and-see approach to COVID-19 in Q1 and Q2, we saw an immediate uptick in well-capitalized national groups descending on the area, looking to take down the largest blocks of space the market had to offer. In fact, at one point in Q3, there were no second-generation blocks of distribution space over 100,000 SF anywhere in the Austin market.
While the market would previously see a handful of 100,000+ SF deals in a year, at the end of 2020 we have multiple 200,000-700,000 SF requirements competing for space, with some companies kicking tires on 1M+ SF build to suits. Many, but not all of these supersized requirements are tied to Tesla’s activities in the market, which we expect will continue to ignite demand for big boxes. Beyond the burgeoning automotive manufacturing sector, however, there are other notably large requirements that will continue to place additional pressure on the supply of big blocks of space.
The Great Land Grab of 2020
Staring down the barrel of fervent demand for at least the next few years, developers have sprung into action. At the end of 2020, there was approximately 1.45M SF of spec industrial space under construction set to deliver in Q2-Q3 of 2021, with another 3.38M SF in the planning stages set to deliver between Q4 2021 and Q3 2022. Behind that, many of these projects have future phases totaling an additional 8.63M SF, while even more developers hunt for land to plant their first – or next – flag in the Austin market.
The projects first set to deliver in 2021 are in Kyle to the south and Georgetown to the north. In Kyle, the Plum Creek Industrial Center, developed by NorthPoint Development, will provide 444,058 SF in its first phase which is set to deliver in May of 2021. The project will be a best-in-class development showcasing the next generation of building standards for the market, including 36’ clear heights and heavy power in a 240’ deep rear-load design. NorthPoint Development already has plans for the project’s second phase which promises to deliver an additional 400,000-500,000 SF to the Hays County submarket.
To the north, NorthPark35 developed by Titan Development, represents the northernmost reaches of spec development in the Austin market, and will serve as a litmus test for the suitability of industrial product this far north. Titan has already had success with pushing the goalposts of Austin’s market with the development of the Innovation Business Park in Hutto, and they’ll have many eyes watching their leasing velocity in Georgetown.
Behind these first deliveries in 2021, many of the spec projects currently in the planning and site development phases are in the north and northeast submarkets near the junction of Highway 290 and State Highway 130. Many of these sites are a (15 minute) stone’s throw from Giga Texas, which will continue to attract a supplier network that needs to be as close as possible. That said, with nearly 6.4M SF of proposed product in this area, albeit in multiple phases, the competition for tenants between Landlords promises to be fierce.
Closing the Year
The 4th quarter caps off what will go down as one of the most interesting and confounding years in decades. As the world crawls out of its bunkers with COVID-19 vaccines in hand, Austin’s industrial market will surely benefit from all of the aforementioned shots in the arm. Looking forward, we anticipate continued, robust demand for industrial space, and continued, robust development looking for its piece of the pie. Austin’s market seems to be on the precipice of “leveling up” from a smaller, local distribution and R&D market to a true Tier 2 industrial market in Central Texas, and 2021 will undoubtedly set the tone.