If you were a tenant seeking more than 100,000 SF of industrial space this quarter, we feel for you.
Key Takeaways
- Supply constraints across all size ranges are forcing many tenants to consider shell space or pre-leasing in planned and under construction projects
- Third-party suppliers for Tesla’s Gigafactory have commenced executing leases – more anticipated in the second half of 2021
- Escalating rents and marginal concessions will likely trend through the year until projects currently under-construction deliver in early 2022
The Boots On The Ground
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.
If you were a tenant seeking more than 100,000 SF of industrial space this quarter, we feel for you. Austin’s industrial market continued its trend of tight supply throughout Q2, driving many tenant requirements into a dwindling supply of shell space while the market awaits new deliveries later this year and into early next. Case in point: Any tenant requirement over 100,000 SF that couldn’t work in a dated metal building was forced to look at shell space, much of which hasn’t yet delivered. There were no 2nd generation tilt-wall options over 100,000 SF across the market.
The Market at a Glance
With the market constrained for space across size ranges, Austin continued the novel trend of pre-leasing with much of the activity taking place in the Southeast and Hays County submarkets. Notably, in June, NorthPoint Development officially delivered the Plum Creek Industrial Center 92% pre-leased. Between deals struck in Phase I (444,058 SF) and one of the largest lease deals ever signed in the Austin area totaling 491,651 SF in Building III, the Plum Creek Industrial Center is left with only 73,528 SF of vacant space out of the 935,709 SF planned in the park. Elsewhere, spec industrial projects have seen similarly robust pre-leasing activity, including Phase II at Park 183 in the Southeast submarket which is nearly 80% pre-leased across its two buildings totaling 317,572 SF under construction.
Since Tesla’s announcement of their new manufacturing facility in East Austin, all eyes have been on the cadre of third-party suppliers and ancillary manufacturers that were competing for lucrative contracts with the company. The second quarter brought the first of these leases, with more planned in the coming months.
Future Forecast
The strong demand in the area has everyone’s sights set on the development pipeline which, while extensive, won’t provide significant relief on vacancy until at least Q4 2021 and into Q1 2022. Planned projects and those currently under construction promise to deliver an additional 5 million square feet of space by the first part of 2022, which we anticipate will temper rate growth and stimulate more competition amongst developers and landlords for deals.
That said, the market remains constrained in the 2nd quarter of 2021, and with no signs of slowing demand, we anticipate inflated rents and skinny tenant concessions in the near term until the real competition starts.
Absorption, Supply & Demand
Robust demand and lagging supply have squeezed the Austin market, benefiting Landlords with inflated rates and abundant preleasing. This is clearly illustrated by Q2’s absorption of 1,006,935 SF – a 12-month high in an already bustling year. Many construction projects (2,294,071 SF currently under-construction) won’t be shell complete until early 2022, which will continue to drive fierce competition amongst the multitude of tenants seeking space through the second half of 2021.
