Q1 2023 Industrial Real Estate Report: Austin, TX
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Austin, known for its unique blend of Southern hospitality, eclectic culture, and thriving technology industry, has become a popular destination for both young professionals and families.
The city has earned the nickname "Silicon Hills" due to the presence of many high-tech companies and startups. Major technology companies such as Dell, IBM, and Amazon have a significant presence in the area, contributing to the city's robust job market and economic growth.
In Q1 2023, Austin's industrial real estate market saw increased rents, rising vacancies, and positive net absorption.
General Area Overview & Demographics
With a population of over 2 million residents, Austin's metro area has experienced significant growth in recent years. The city's population has been steadily increasing, attracting people from all over the country and even internationally. This growth can be attributed to various factors, including a strong job market, a relatively low cost of living compared to other major cities (yet slightly more expensive industrial rents), and the allure of Austin's distinct lifestyle.
Demographically, Austin is a diverse city with a mix of ethnicities and backgrounds. According to the latest available data, the population is predominantly White (about 48%), followed by Hispanic or Latino (about 34%), African American (about 8%), and Asian (about 7%). The city also has a growing international community, contributing to its cultural diversity and status as one of the most prosperous cities in the nation.
Austin is often referred to as the "Live Music Capital of the World" due to its thriving music scene. The city hosts several large music festivals, including South by Southwest (SXSW) and Austin City Limits, attracting musicians and music lovers from around the globe. Additionally, Austin is home to numerous live music venues, ranging from small intimate bars to large concert halls.
In terms of lifestyle, Austin offers a laid-back and outdoorsy atmosphere. The city is surrounded by beautiful natural landscapes, including the Colorado River and the Hill Country, providing ample opportunities for outdoor activities such as hiking, biking, and kayaking. Moreover, Austin boasts a vibrant food scene, offering a wide variety of culinary options, from food trucks to upscale restaurants.
Summary of Austin Industrial Real Estate Performance in Q1 2023
In Q1 2023, the overall vacancy rate for Austin's industrial real estate market increased to 7.8% from 4.7% in Q4 2022. The warehouse vacancy rate was 8.2%, while flex space vacancy stood at 6.3%.
Several submarkets, including Southwest, Far Northwest, and Cedar Park, reported a 0% vacancy rate for warehouses, while Georgetown had a 0% vacancy rate for flex space. On the other hand, Georgetown had the highest vacancy rate for warehouse space at 32.5%, and Far Northeast had the highest vacancy rate for flex space at 14.3%.
The total absorption across all submarkets and building types amounted to 72,000 square feet.
What Are Industrial Real Estate Rents Like in Austin?
The average asking rent per square foot for Austin warehouse space increased from $12.56 to $13.75 quarter-over-quarter, while the average rent for Austin flex space increased from $17.11 to $17.22 per square foot.
The South submarket had the highest average warehouse rent per square foot at $20.23, the only submarket above $20 for that space type. The East submarket recorded an average rent of $28.01 per square foot for flex space. Hays County had the lowest average rent for flex space ($12.28), while Northeast had the lowest average rent for warehouse space ($11.48).
Purchase & Leasing Activity
In the North submarket, MIG Real Estate purchased 545,000 square feet at Braker Business Park from World Class Capital. In the Southeast submarket, Spec's Wine and Spirits leased 160,000 square feet at Park 183.
Notable Industrial Real Estate Deals in Austin in Q1 2023
Several notable deals took place in Austin's industrial real estate market in Q1 2023:
- New Star Food Service purchased 150,000 square feet from TOP Equipment.
- An undisclosed buyer purchased 72,000 square feet from Ford Motor Company.
Additionally, 3-Way Logistics leased 130,000 square feet, and FGO Logistics leased 66,000 square feet. These are select examples among other market activity.
New Industrial Real Estate Development Activity in Austin in Q1 2023
Austin's industrial market also saw significant deliveries in the first quarter of 2023. Titan Development delivered 420,000 square feet at Gateway35, Building 2 and 3; Messenger Investment Company delivered 408,000 square feet at 12821 Titanium St.; and Alliance Industrial Company delivered 157,000 square feet at Corridor Commerce Center.
At the close of Q1 2023, nearly 11 million square feet of industrial product remained in the pipeline.
Market Forecast for Austin's Industrial Real Estate Market
The Austin industrial real estate market has a positive future. New construction projects will intensify competition among landlords for tenants. Developers are increasingly willing to divide spaces into smaller footprints, offering relief to smaller tenants facing high rates.
Market rents will hold steady but slow down due to heightened developer competition, and prelease activity levels are decreasing.
Despite a projected mild recession in Q2 2023, Austin's industrial real estate market remains resilient and demand-driven.
Takeaways for Industrial Real Estate Investors
Given Austin's robust market fundamentals, the city's industrial real estate market is expected to continue performing well for the remainder of the year. Investors interested in industrial property may do well to consider this market.
Do your research, stay diligent, and happy investing.
Methodology
This report was written with property information from the MyEListing.com platform in corroboration with other freely available commercial real estate research data.
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