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Kim Gatley
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enior Vice President & Director of Research at REOC Austin

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REOC Releases 2Q 2015 Industrial Market Report

Area industrial properties reported healthy leasing activity in the second quarter.  Notable leases included Brown Traffic (126,500 sf) at 301 Howard, Fashion Forums (89,440 sf) at McNeil 1 along with Reaction Housing (50,268 sf) and Fourhands Furniture (44,000 sf) at Southpark Commerce Center.  As a result, the Austin industrial market closed the second quarter with a very healthy citywide vacancy rate of 8.9%, according to the survey of nearly 37.9 million square feet of industrial lease space.  Demand for industrial space has tightened the citywide vacancy rate from 9.8% last quarter and 12.0% recorded in the same quarter last year.

The sub-ten-percent vacancy rate continues to give developers the confidence to move forward with speculative development.  Developers are optimistic that demand for well-located, high-quality product will fill more than 670,000 square feet of new warehouse space currently under construction. Expo 10 (109,203 sf) & 11 (130,002 sf) along with Met Center 2 Building 3 (160,000 sf) are expected to come online next quarter to increase inventory in the Southeast sector.  The vacancy rate in the Southeast sector currently stands at 8.4% and vacant space within the Warehouse submarket is nearly non-existent, indicated by a vacancy rate of 5.3%.  Demand for warehouse space is already impacting projects under construction.  Kendra Scott Design, for example, inked a lease for 64,800 square feet at Expo 11.

New leases and expansions within existing industrial buildings translated into 281,531 square feet of positive net absorption in the second quarter which raised the year-to-date total to 563,415 square feet of positive net gain.  Activity through mid-year generated more absorption than the total experienced for all of last year.  Pre-leasing activity now occurring within projects under construction will boost absorption even further when buildings reach completion and come online.

As vacancy rates continue to tighten, landlords are emboldened to increase quoted rental rates.  Despite this upward pressure, there was no significant change in quoted rents compared to last quarter.  The cost of renting office warehouse space currently ranges between $0.50 – $0.65 per square foot per month on a triple net basis while the price for bulk warehouse ranges between $0.45 – $0.60.  Asking rental rates for area Flex properties range between $0.80 – $1.10 per square foot per month.

As long as demand for industrial space continues to outpace new supply, vacancy will continue to tighten and rental rates will rise.  Investors seem convinced that the outlook remains bright for the Austin industrial market.  Notable sales transactions in the second quarter included TR Stonehollow Corp’s purchase of Stonehollow Industrial Park 1-6 (384,174 sf), General Motors’ acquisition of 13201 McCallen Pass (302,604 sf) and KFG Investment Co.’s purchase of Cameron Centre and Techni Center 6 & 7 (271,060 sf).

Click to download REOC Austin’s complete 2Q 2015 Industrial Market Report

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