AUSTIN INDUSTRIAL | Q2 2018 Quarterly Market Report

HOUSTON | AUSTIN | SAN ANTONIO

2.0%

4.4%

6.8%

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11.6%

14.0%

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Net Absorption Completions Vacancy

Supply & Demand

www.naipartners.com/austin

EXECUTIVE SUMMARYPositive industrial market indicators

Austin’s industrial market remained tight during the second quarter of 2018, with the overall vacancy rate rising slightly to 6.8%, an increase of 10 basis points quarter-over-quarter, and year-over-year. In addition, net absorption continued in positive territory for the fourth consecutive quarter at 143,490 sq. ft.—though down from Q1 2018’s 783,605 sq. ft. Solid demand led to an overall NNN average annual asking rent increase during Q2 2018. The price to rent both Flex and Manufacturing space dropped, while the cost of Warehouse/Distribution space increased, pulling the overall average rent up $0.12 to $10.45 per sq. ft., a figure that has remained largely unchanged from this time last year at $10.41. Close to 1 million sq. ft. has been delivered in 2018, with about 44% of that space available for occupancy.

Austin labor market

Austin jobs grew at a 0.9% annualized rate over the three months through May. Growth was varied across industries, with all goods-producing sectors and several large service sectors shedding jobs. Professional and business services and health and education services sectors experienced declines and dropped nearly 3,300 jobs over this time. Equally, leisure and hospitality employment surged, adding over 4,200 jobs. Austin’s unemployment rate fell to a low of 2.9% in May, from 3.0% in April. This is well below the May Texas and U.S. jobless figures of 4.1% and 3.8%, respectively.

AUSTIN INDUSTRIAL | Q2 2018

Quarterly Market ReportJULY 2018

Market Indicators

Current Q2 2018

Prior Quarter Q1 2018

Year Ago Q2 2017

Vacant Direct 6.4% 6.4% 6.6%

Vacant Total 6.8% 6.7% 6.7%

Available Direct 10.4% 9.8% 9.0%

Available Total 11.3% 10.5% 9.5%

Net Absorption (SF) 143,940 783,605 -138,486

Leasing Activity (SF) 958,254 1,108,782 2,028,543

Construction (SF) 2,272,866 1,708,397 2,273,551

Deliveries (SF) 284,411 706,529 787,651

Avg Asking Rent (NNN) $10.45 $10.33 $10.41

Inventory (SF) 88,395,191 88,110,780 86,443,382

MARKET OVERVIEWVacancy rate steady in 2018

Austin’s industrial vacancy rate, measuring all space not currently occupied by a tenant, stood at 6.8%, up marginally from 6.7% quarter-over-quarter, and year-over-year. Among the major property types, Warehouse/Distribution ended the quarter at 7.1% vacancy, Manufacturing closed at 0.8% of unoccupied space, and Flex space at 10.8% vacancy. Vacancy in the Austin industrial market has remained at or below 7% for the last four consecutive quarters, following all-time lows during 2016 ranging between 4.1% to 4.8%. These lows took place at the same time global ecommerce giant Amazon’s new 855,000-sq.-ft. fulfillment center opened in San Marcos. Supply shortages continue in the industrial market for certain types of space, especially large Warehouse/Distribution properties between 50,000 sq. ft. and 100,000 sq. ft. The market is awaiting the completion of close to 1.7 million sq. ft. of Warehouse/Distribution space in several new projects that will help meet the demand. In addition, of the overall 2.3 million sq. ft. under construction, 85% is available for lease, which may impact the velocity of leasing activity throughout the second half of 2018.

Leasing activity

Leasing activity fell slightly quarter-over-quarter with a total of 960,000 sq. ft. leased in the overall Austin market, and down 400,000 sq. ft. year-over-year. The largest lease signings occurring in the second quarter of 2018 included 73,000 sq. ft. taken at 12300 Technology Blvd. in the Northwest submarket; 57,600 sq. ft. leased at 7701 Metropolis Road-Building 15; and 28,800 sq. ft. removed at Met Center II, Building 14, also in the Southeast submarket. A key tenant move-out in Q2 2018 involved Peerless Events & Tents moving out of 80,000 sq. ft. at 2809 S. Interstate 35, and in Q1 2018 the U.S. Postal Service leaving 139,380 sq. ft. at 11000 N. I-35. Looking towards the future, in Q3 2018 Elliott Electrical Supply is expanding into a new Warehouse/Distribution 144,113-sq.-ft. space at 12555 Harris Branch Pwky. near the border of Manor, TX in far northeast Austin. Plans to commence operations are scheduled for Q4 2018.

Flexible industrial space for area businesses

The Collective Austin, an 83,000-sq.-ft. industrial warehouse development, is under construction at 7601 S. Congress Ave. The project is designed as flexible industrial space for local businesses looking for 1,800 to 28,000 sq. ft. Three leases are said to

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Quarterly Market Report



Vacancy & Availability

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11.3%

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6%

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Vacant Available

Construction

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Flex Manufacturing Warehouse/Distribution

Net Absorption

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have been signed recently, including a fitness studio and a company that converts old cars to electric cars. The site includes six buildings, each a different size, that can be utilized as studios or retail space. On the horizon, AEND Industries Inc., a high-end performance polyurethane wheel manufacturing company, is relocating its California headquarters and operations to Hutto, TX. The company announced plans to build a new 19,200-sq.-ft. manufacturing facility at North Town Commons Business Park. The company is scheduled to start operations in January of 2019. AEND Industries said the cost of doing business in California led them to Texas, with plans to employ at least 40 people within nine months of opening in Hutto.

Sales volume up year-over-year

Real Capital Analytics data reports year-to-date industrial sales volume in the Austin area at $436 million, resulting in a year-over-year increase of 105.5%. The current buyer composition is made up of primarily private investors at 73%, cross-border buyers at 14%, and institutional investors at 12%. A recent significant transaction in the Austin industrial market is the acquisition of University Business Center by Shoal Creek Acquisitions LLC in May 2018. The four-building, 114,545-sq.-ft. portfolio is located in Austin’s Southeast submarket and were 100% occupied at the time of sale by St. Croix Capital Corp. Major tenants at the flex complex include Free Speech, Honeywell-Vindicator, and WorkSTEPS.

Average NNN asking rates remain elevated

The Austin industrial market saw overall NNN average annual asking rates inch up $0.12 per sq. ft. quarter-over-quarter to finish at $10.45 at the end of Q2 2018. Rates for industrial real estate throughout Austin show that the Northwest submarket has the highest prices for industrial space at $12.36. The average rate for Flex space is currently highest in the Northeast submarket, at $13.74 per sq. ft.; Manufacturing rates peak in the Georgetown/Round Rock submarket, at $11.50; and Warehouse/Distribution space is at its high point in the Southeast at $11.72. Part of the appeal of the Southeast industrial submarket, located primarily east of IH-35, and surrounding the Austin Bergstrom International Airport, is the easy access to San Antonio, Central Texas and Houston via the surrounding major highways. The Georgetown submarket, and the city’s location alongside the IH-35 corridor, meets the needs of industrial developers, evidenced by the 532,000 sq. ft. of construction currently underway.

Completions

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Average NNN Asking Rent

$12.62

$6.30

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Austin Industrial Cumulative Monthly Sales VolumeSource: Real Capital AnalyticsYear-to-date volume ($): 436,023,532Year-over-year chg: 105.5%

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MARKET OVERVIEWSubmarket Stats

Submarket StatisticsInventory

(SF)

Total Vacancy

(%)

Total Availability

(%)

Q2 2018 Total Net

Absorption (SF)

YTD Total Net

Absorption (SF)

Q2 2018 Deliveries

(SF)

YTD Deliveries

(SF)

Under Construction

(SF)

Total Avg Asking Rent

($/PSF)

Austin Market Total 88,395,191 6.8 11.3 143,940 927,545 284,411 990,940 2,272,866 10.45

Flex 20,702,776 10.8 14.9 -119,353 56,133 0 115,200 610,454 12.62

Manufacturing 15,677,028 0.8 3.9 -2,834 49,696 0 0 0 6.30

Warehouse/Distribution 52,015,387 7.1 12.0 266,127 821,716 284,411 875,740 1,662,412 9.54

Submarket StatisticsInventory

(SF)

Total Vacancy

(%)

Total Availability

(%)

Q2 2018 Total Net

Absorption (SF)

YTD Total Net

Absorption (SF)

Q2 2018 Deliveries

(SF)

YTD Deliveries

(SF)

Under Construction

(SF)

Total Avg Asking Rent

($/PSF)

Georgetown/Round Rock Total 8,002,011 6.5 16.6 -48,376 -58,738 0 11,158 531,964 7.96

Flex 972,542 6.7 19.4 -13,075 -38,361 0 0 67,500 8.58

Manufacturing 1,934,281 1.4 7.7 1,272 -3,000 0 0 0 11.50

Warehouse/Distribution 5,095,188 8.5 19.2 -36,573 -17,377 0 11,158 464,464 7.89

North Central Total 18,628,451 6.2 9.9 126,122 272,250 0 0 265,693 10.99

Flex 4,729,377 9.9 11.9 35,063 91,461 0 0 0 12.03

Manufacturing 1,516,752 1.8 10.9 0 5,400 0 0 0 9.00

Warehouse/Distribution 12,382,322 5.4 9.1 91,059 175,389 0 0 265,693 9.52

Northeast Total 25,353,383 6.2 9.0 50,775 123,575 0 0 645,218 10.61

Flex 6,111,549 12.8 16.8 -85,329 -59,726 0 0 354,734 13.74

Manufacturing 5,343,276 0.7 2.2 21,721 83,565 0 0 0 8.15

Warehouse/Distribution 13,898,558 5.5 8.0 114,383 99,736 0 0 290,484 9.02

Northwest Total 7,139,362 5.0 9.0 22,632 6,221 0 0 335,570 12.36

Flex 3,133,002 7.2 12.3 -13,359 7,817 0 0 188,220 12.67

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

Warehouse/Distribution 2,732,210 4.7 8.8 35,991 -1,596 0 0 147,350 11.30

East/Southeast Total 19,319,307 10.7 16.2 -26,618 489,795 261,911 922,282 413,221 11.93

Flex 4,966,869 12.3 15.2 -32,348 50,690 0 115,200 0 12.81

Manufacturing 1,693,828 2.1 4.2 -25,827 -36,269 0 0 0 8.40

Warehouse/Distribution 12,658,610 11.3 18.2 31,557 475,374 261,911 807,082 413,221 11.72

Southwest Total 9,952,677 3.4 7.0 19,405 94,442 22,500 57,500 81,200 8.63

Flex 789,437 10.8 20.6 -10,305 4,252 0 0 0 13.71

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

Warehouse/Distribution 5,248,499 4.8 8.2 29,710 90,190 22,500 57,500 81,200 7.91




Quarterly Market ReportJULY 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 | Q2 2018 Quarterly Market Report

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