AUSTIN INDUSTRIAL | Q1 2018 Quarterly Market Report€¦ · 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1...

HOUSTON | AUSTIN | SAN ANTONIO

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Supply & Demand

www.naipartners.com/austin

EXECUTIVE SUMMARYVacancy tightens for third consecutive quarter

Austin’s industrial market tightened for the third consecutive quarter with the vacancy rate for the metro area dropping to 6.9%, a decrease of 20 basis points quarter-over-quarter, although an increase of 110 basis points year-over-year. In addition, net absorption remained in positive territory for the second quarter at 788,295 sq. ft., up from 655,490 sq. ft. in Q4 2017. Steady demand led to an average asking rent increase in both Warehouse/Distribution and Flex space, while Manufacturing space dropped, pulling the overall average rent down $.06 to $10.48, a figure that has remained largely unchanged the last four quarters. More than 700,000 sq. ft. delivered in Q1 2018, with about 65% of that space available for occupancy. In addition, there is 1.7 million sq. ft. under construction with 78% available for lease, which may impact the velocity of leasing activity throughout 2018.

Austin economic indicators

The Austin Business-Cycle Index grew at its fastest pace since late 2015, boosted by strong employment growth over the first two months of the year. The unemployment rate increased slightly to 3.0%, due to a surge in the local labor force, but remained near a two-decade low. Census data for 2017 reported population growth in Austin slowed slightly to 2.7% in 2017 from 3.0% the prior year, and below the long-term population growth rate of 3.5%. However, this was nearly double the 1.4% pace for the state, and in a further comparison, the U.S. has averaged a 1.0% population increase per year since the early 1980s.

AUSTIN INDUSTRIAL | Q1 2018

Quarterly Market ReportAPRIL 2018

Market Indicators

Current Q1 2018

Prior Quarter Q4 2017

Year Ago Q1 2017

Vacant Direct 6.7% 6.9% 5.6%

Vacant Total 6.9% 7.1%

5.8%

Available Direct 10.2% 9.5% 8.0%

Available Total 10.8% 10.0% 8.8%

Net Absorption (SF) 788,295 655,490 139,962

Leasing Activity (SF) 919,735 2,767,441 1,908,846

Construction (SF) 1,692,597 2,194,488 1,937,551

Deliveries (SF) 718,461 133,500 1,118,067

Avg Asking Rent (NNN) $10.48 $10.54 $9.98

Inventory (SF) 89,441,294 88,799,787 87,099,580

MARKET OVERVIEWChanging tenant demands

During Q1 2018 demand totaled 788,295 sq. ft., while new supply registered at 718,461 sq. ft. After reaching an all-time recorded high in Q3 2016 of almost 1.7 million sq. ft. of net absorption, the following four quarters each averaged about 100,000 sq. ft. of negative absorption. The last two quarters have been back in the black, averaging 720,000 sq. ft. of positive absorption. Another record-breaker took place in Q3 2016, with over 1.2 million sq. ft. delivered to the market. This has brought the average amount of square feet delivered to the Austin industrial market on a quarterly basis to about 700,000 sq. ft. as of the end of Q1 2018. With this tremendous growth, developers are going to be tasked with the challenge of finding unique ways to lure in potential tenants.

Tenants on the move

In January, Goodwill pre-leased a 107,780-sq.-ft. warehouse at 2300 Scarbrough Drive. They will fully occupy Building 5 in the Heritage Crossing industrial complex upon its delivery, which is scheduled to be completed in Q4 2018. Major tenants within the center include LKQ Corporation, Wisenbaker Building Services, BTX Global Logistics and Solar City. Other tenant move-ins included 57,500 sq. ft. taken by XPO Last Mile at Visa Park 7 in the North submarket; and 47,456 sq. ft. leased by Total Office Solutions at Freeport Tech Center South – Building 2. The major tenant move-outs involve the U.S. Postal Service leaving 139,380 sq. ft. at 11000 N. I-35; Goodwill Industries vacating 95,672 sq. ft. at Heritage Crossing – Building 1; and Flooring Services exiting 86,700 sq. ft. at 15855 Long Vista Dr.

Spec project delivers in the Southeast submarket

Southpark Commerce Center V, a 351,171-sq.-ft. industrial spec project, completed construction in Q1 2018. The center is comprised of three Class A multi-tenant buildings. Building 1 is 47% pre-leased to Urban Air functioning as a 73,823-sq.-ft. service center. Buildings 2 and 3 will serve as conventional rear-load warehouses. Another notable Q1 2018 delivery is Texas 2-Data Ranch at 4100 Smith School Road, a 195,000-sq.-ft. facility that is 100% occupied.

1.7 million sq. ft. under construction

Of the1.7 million sq. ft. under construction in the Austin industrial market, a large percentage of that space is available for lease. The largest projects underway at the end of first quarter 2018 were Springbrook Corporate Center – Building 8, with full availability of 160,000 sq.

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Quarterly Market Report



Vacancy & Availability

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ft., and the 148,720-sq.-ft. Innovation Business Park in Hutto, also fully available. Austin’s industrial market is evolving as tenants are searching for space that is more efficient. Higher ceiling heights are number one on the list of criteria required by today’s users. Of the 1.7 million sq. ft. under construction, 60% of those properties offer 28- to 30- foot clear heights, compared to the traditional 24-foot. With the intense pace of new construction during the last two years, the construction pipeline may slow once current projects are completed.

Sales volume up year-over-year

Real Capital Analytics data reports year-to-date industrial sales volume in the Austin area at $284 million, resulting in a year-over-year change of 204.8%. A recent top transaction in the Austin industrial market is the acquisition of The Tuscany Distribution Center, part of the Austin Industrial Portfolio that was acquired by Dalfen America Corp. in March 2018. The portfolio is made up of seven light industrial properties totaling 459,585 sq. ft. located in Austin’s Research Triangle Park; and 1307 Smith Westward Ltd.’s purchase of Angelica Textiles, a 120,347-sq.-ft. industrial warehouse located at 1307 Smith Rd. in the East submarket, from Gramercy.

Leasing activity decelerated

Leasing activity fell during the first quarter with a total of 919,735 sq. ft. leased in the overall Austin market, a decrease of 1.8 million sq. ft. from last quarter. This is in comparison to 1.9 million sq. ft. leased this time last year. On a percentage basis, transactions slowed quarter-over-quarter by 67%, while the year-over-year drop was at 52%. The largest lease signings occurring in Q1 2018 included the 91,482-sq.-ft. lease signed at 507 E. Howard Lane by 3M in the Northeast submarket; 83,470 sq. ft. leased at 1200 BMC Dr. in the Cedar Park submarket; and the 57,600-sq.-ft. lease agreement at 401C Parker Drive, in the North submarket.

Average NNN asking rates remain elevated

The Austin industrial market saw overall NNN average asking rates inch down $0.06 per sq. ft. quarter-over-quarter to finish at $10.48 at the end of Q1 2018. Industrial NNN rents in Austin averaged $6.67 per sq. ft. from 2001 to 2012, with low year-over-year changes in asking rents. In 2013, when the signs of a recovering real estate market began to materialize, Austin started to experience increased rent growth. Between 2013 and 2017, industrial rents in Austin averaged $8.66 per sq. ft., an approximate 30% increase.

Completions

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Austin Industrial Cumulative Monthly Sales VolumeSource: Real Capital Analytics

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MARKET OVERVIEWSubmarket Stats

Submarket StatisticsInventory

(SF)

Total Vacancy

(%)

Total Availability

(%)

Q1 2018 Total Net

Absorption (SF)

YTD Total Net

Absorption (SF)

Q1 2018 Deliveries

(SF)

YTD Deliveries

(SF)

Under Construction

(SF)

Total Avg Asking Rent

($/PSF)

Austin Market Total 89,441,294 6.9 10.8 788,295 788,295 718,461 718,461 1,692,597 10.48

Flex 21,335,722 10.8 14.6 153,931 153,931 127,132 127,132 245,220 13.72

Manufacturing 16,229,940 1.7 5.1 42,209 42,209 0 0 0 6.39

Warehouse/Distribution 51,952,586 7.0 11.1 592,155 592,155 591,329 591,329 1,447,377 8.94

Submarket StatisticsInventory

(SF)

Total Vacancy

(%)

Total Availability

(%)

Q1 2018 Total Net

Absorption (SF)

YTD Total Net

Absorption (SF)

Q1 2018 Deliveries

(SF)

YTD Deliveries

(SF)

Under Construction

(SF)

Total Avg Asking Rent

($/PSF)

Georgetown/Round Rock Total 8,339,246 5.8 14.6 -8,630 -8,630 23,090 23,090 365,290 7.59

Flex 999,474 7.3 19.1 -28,854 -28,854 11,932 11,932 57,000 8.92

Manufacturing 1,934,281 1.4 7.7 -4,272 -4,272 0 0 0 11.50

Warehouse/Distribution 5,405,491 7.2 16.2 24,496 24,496 11,158 11,158 308,290 7.45

North Central Total 18,772,470 7.4 11.7 122,472 122,472 0 0 265,693 11.04

Flex 4,852,266 12.4 15.7 32,742 32,742 0 0 0 12.76

Manufacturing 1,739,664 1.6 11.1 5,400 5,400 0 0 0 9.00

Warehouse/Distribution 12,257,494 6.3 10.2 84,330 84,330 0 0 265,693 9.09

Northeast Total 25,395,541 6.4 9.1 104,266 104,266 0 0 270,280 11.15

Flex 6,029,461 11.6 13.8 25,603 25,603 0 0 0 15.79

Manufacturing 5,343,276 1.1 3.4 61,844 61,844 0 0 0 8.15

Warehouse/Distribution 14,022,804 6.2 9.3 16,819 16,819 0 0 270,280 9.57

Northwest Total 7,252,169 5.2 8.0 -16,411 -16,411 0 0 315,570 13.74

Flex 3,133,002 6.8 10.1 21,176 21,176 0 0 188,220 14.62

Manufacturing 1,274,150 0.0 1.2 0 0 0 0 0 -

Warehouse/Distribution 2,845,017 5.8 8.6 -37,587 -37,587 0 0 127,350 11.34

East/Southeast Total 19,717,624 10.1 13.1 512,061 512,061 660,371 660,371 369,364 11.67

Flex 5,510,235 11.7 14.5 88,707 88,707 115,200 115,200 0 13.91

Manufacturing 2,023,828 7.8 9.1 -20,763 -20,763 0 0 0 8.40


Southwest Total 9,964,244 3.4 7.9 74,537 74,537 35,000 35,000 106,400 8.67

Flex 811,284 10.1 26.3 14,557 14,557 0 0 0 13.59

Manufacturing 3,914,741 0.0 2.6 0 0 0 0 0 5.40





Quarterly Market ReportAPRIL 2018

Information and data within this report were obtained from sources deemed to be reliable. No warranty or representation is made to guarantee its accuracy.

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MARKET OVERVIEWAustin Industrial Submarkets

1. Georgetown/ Round Rock

2. North Central

3. Northeast

4. Northwest

5. Southeast

6. Southwest


Leta WausonDirector of Research

[email protected] 713 275 9618


NAI Partners Austin Office 701 Brazos Street, Suite 320Austin, Texas 78701

tel 512 580 6208


AUSTIN INDUSTRIAL | Q1 2018 Quarterly Market Report€¦ · 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1...

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