Industrial product dampens leading into H2 2019

Despite robust positive net demand in Q3 2019, the Austin industrial market continues to show signs of softening leading into H2 2019. The development pipeline continued to slacken with no new projects kicking off this quarter and an overall average asking rate drop throughout the market. The Warehouse sector continues to drive the Austin industrial market as Flex/R&D product continues to slip in overall demand.

The development pipeline fell below 1 million sq. ft. in Q3 2019, which has not happened since Q2 2017. Hays County and the Southeast submarket continue to receive the majority of new construction activity, with 937,000 sq. ft. of development actively underway across five projects. With only 9% preleasing on projects under construction, developers are showing signs of softening on the industrial market in Austin.

Citywide average asking rents continued to decline from their historic highs in Q1 2019, falling to $10.06 per sq. ft. in Q3 2019. Flex/R&D rates fell $0.04 quarter-over-quarter to $13.10 per sq. ft., while Warehouse rates fell from $8.22 last quarter to $7.97 per sq. ft. Despite the slip in rates, Warehouse demand accounted for all positive net demand this quarter, registering 487,311 sq. ft. of absorption; Flex/R&D product registered negative 102,871 sq. ft. Vacancy fell 30 basis points in Q3 2019 to 10.8%, driven by the demand for Warehouse product.

Unemployment in the Austin metropolitan area rose to 2.9% in July 2019, well below the state average of 3.4% and the national average of 3.7%. Job growth has been robust for all industries, with the Information sector showing the largest growth of 17% annually.

More Info: https://www.cbre.us/research-and-reports/Austin-Industrial-MarketView-Q3-20190