Austin - San Antonio Q1 Wrapup
This year is off to a good start in central Texas. With booming industrial development and massive multifamily projects topping out all across the area, central Texas is set for a big year. But will the office market crash the party? Here are the numbers.
Office
Austin
Austin’s overall vacancy rate rose to 9.7% in Q1 2017, and net absorption stood at negative 51K SF as of the quarter’s end, following the more than 1.2M SF of positive absorption for the entire year in 2016. Austin citywide leasing activity is at about 857K SF, down from the previous quarter’s 2.2M SF. The construction pipeline remained steady at just north of 1M SF.
San Antonio
San Antonio’s overall vacancy rate fell to 12.6% in Q1 2017. Net absorption stood at 50K SF at the end of the quarter. Another notable storyline in San Antonio is the increased amount of Class-A office space being built, which has contributed to a rising rental rate that has remained above $24/SF since this time last year.
Industrial
Austin
Austin’s industrial market felt a slight bump going into 2017, and ended the first quarter struggling to regain the momentum it experienced this time last year. The vacancy rate for the metro area rose to 6.1% in Q1 2017. Net absorption stood at negative 134K SF as of the quarter’s end. Demand in the market has pushed rents to new highs, with the citywide average asking rate at $9.95/SF. Over 1M SF delivered in 2017 with 33.3% availability, and there is still 1.4M SF in the construction pipeline with 87% availability, which may lead to tougher times for the Austin industrial market.
San Antonio
San Antonio’s industrial vacancy rate rose slightly over the last quarter to 6.5%. This uptick should not be cause for fear, as activity remains strong. As of the first quarter, there is over 400K SF of new construction underway, with almost all of it being built on a speculative basis. Dollar General recently built a 1M SF distribution building near Interstate 10, O’Reilly Auto Parts built a 380K SF distribution center in Schertz, and Carrier is building an 800K SF warehouse that will distribute commercial HVAC units.
Multifamily
Austin
Home price appreciation occurred at a record pace for the past four years, outpacing both rent and income growth. Renting has become the more affordable option, particularly in urban areas of the metro, driving strong absorption trends during a period of record building, keeping vacancy low. To address this demand, completions will remain elevated this year, though they will dip slightly from last year’s record level. Vacancy will stay below 5% and generate healthy rent gains across the market during 2017.
San Antonio
A solid pace of employment growth is providing a steady stream of renters in San Antonio, and vacancy will retreat to the low point of this cycle during 2017. Builders added 26,500 apartments in the past four years, though the construction pipeline is beginning to thin. As demand catches up with supply, overall vacancy will tighten during 2017 while supply-side pressure increases in the other major metros of Texas. Contracting vacancy will encourage another year of healthy rent growth.
