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

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REOC Releases 4Q 2015 Industrial Market Report

The final quarter of 2015 featured a trifecta of positive indicators in the Austin industrial market including healthy leasing/sales activity, positive net absorption and improved occupancy.  Strong market fundamentals continue to support stable rental rates and new construction.

According to the survey of more than 38 million square feet of industrial lease space, new leases and expansions generated 400,200 square feet of positive net absorption in the fourth quarter led by Educational Testing Services (ETS).  ETS took occupancy of more than 150,000 square feet in the newly completed Expo 10 & 11 buildings.  This activity contributed to the strong fourth quarter performance of the Southeast sector which led all sectors with 320,329 square feet of positive net gain.  The Northeast sector also recorded notable leases including the expansion of Javelin Logistics (51,940 sf) at Tech Ridge 4.1 and Levantina, USA (29,781 sf) at Northpointe Trade Center B.  For the year, the Austin industrial lease market experienced a net change in occupied space totalling 1,458,958 square feet – nearly matching the total net gain recorded for the past two years combined.

Healthy leasing and positive absorption are manifested in the improved citywide vacancy rate which tightened from 7.5% in the third quarter to 6.9% at year’s end.  The current vacancy rate is substantially improved compared to 10.9% recorded twelve months earlier and is especially significant considering that new construction delivered more than 552,000 square feet throughout the course of the year including the fourth quarter delivery of MetCenter II, Bldg 3 – a 160,000-square-foot Flex/R&D building.

Warehouse properties dominated leasing activity in the fourth quarter tallying 431,772 square feet of positive net gain.  Demand eclipsed new supply by a margin of nearly 3 to 1 with absorption of warehouse space totalling 1,143,944 square feet at year-end compared to 392,205 square feet of new warehouse inventory added to the market through the course of the year.  As a result, warehouse properties closed the year with an incredibly tight citywide vacancy rate of 5.6% which is down from 7.1% last quarter and 9.0% recorded in the fourth quarter of 2014.

Flex/R&D properties, on the other hand, experienced a setback of 31,572 square feet of negative net absorption in the fourth quarter which offset gains from earlier in the year and lowered the year-end total gain to 315,014 square feet.  As a result, area Flex/R&D properties closed the year with a citywide vacancy rate of 9.4% which softened compared to 8.4% last quarter but remains considerably improved compared to 14.6% recorded a year ago.

While quoted rental rates fluctuate a penny here or there, no significant change was measured compared to the previous quarter; however, upward pressure on rents will increase as vacancy rates continue to tighten.  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.

Looking ahead, strong market fundamentals continue to support additional speculative development.  There are currently two major buildings under construction totalling 202,000 square feet including MetCenter II, Building 12 – a 72,000-square-foot Flex/R&D building – as well as Expo 12 – a 130,000-square-foot warehouse building – both situated in the Southeast sector.  In addition, several more projects are expected to break ground in the year ahead including Tech Ridge 2.1 (76,400 sf) and Tech Ridge 3.1 (115,200 sf).

Austin’s positive performance and long-term economic outlook keep investors interested in local industrial assets.  Big Box Property, for example, recently purchased Northpointe Trade Center (450,015 sf).  Other recent sales included Springdale Business Center (159,000 sf) and Southpark Corporate Center 3 & 4 (176,000 sf) and Global Logistics acquired Vista Point II (171,925 sf).

Click to download REOC Austin’s complete 4Q 2015 Industrial Market Report

 

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