Wrapping Up Q1: What The Rest Of 2017 Holds For Austin CRE
It will not be difficult to keep Austin weird this year if commercial and residential real estate markets remain stable. Austin still ranks No. 1 in the Urban Land Institute and PwC’s Emerging Trends in Real Estate 2017 joint forecast report.
“Despite Austin’s growing popularity, it remains a comparatively small market in terms of investment opportunities,” the report stated. “While Austin is unlikely to attract a meaningful amount of off-shore capital, it tops many domestic investors’ wish lists. This makes the market very competitive.”
However, the frenzy of expansion that has long characterized a favorite Millennial city has slowed a great deal.
The lenders at Hunt Mortgage Group have their finger on the city's pulse and sat down with Bisnow to explore the tempered growth and ups and downs of Austin's residential, office and retail markets.
Office Markets Are Plateauing
Though office construction is soaring, more than 50% of the spaces are pre-leased. Vacancies have dropped from 11.8% to 11.1% overall, with CBD Class-A rates lowering from 6.9% in Q3 to 6% in Q4 of 2016. Meanwhile, suburban Class-A rates fell even further from 13.6% to 12.7%. With such a tight market, absorption rates will likely stagnate over the next year unless major international businesses — Google, Apple, Facebook and the like — decide to set up shop or expand in the city. As a result, suburban office spaces are likely to begin offering friendlier values over the next year.
Hunt lenders point out that the market in general is slowing, which does not bode well for office leasing. According to Reis Reports, Austin’s average annual growth rate from 2013 to 2017 stands at 0.3%, slower than the average of the Southwest region (0.7%) and the United States at large (0.6%).
The Housing Market Is Stable, But That Could Change
Builders and developers surveyed by 360 Real Estate Analytics witnessed higher volumes of sales in 2016 than in previous years. Confidence levels are similar to those seen in the early 2000s, though it is still early to tell whether increases in mortgage interest rates and a slower, 2% job growth rate will begin negatively impacting the market.
“I don’t think [the job growth rate] will dent demand for housing,” 360 Real Estate Analytics principal Eldon Rude said in an interview with the Austin American-Statesman. “[But] job growth is the engine that drives housing demand and consumer confidence is the gasoline.”
Retail Markets Are Falling
Austin retail rents have fallen 0.8% from 2013 to 2017. Contrast this with a general rise in rents nationwide; Reis reports a 0.1% growth in the Southwest region at large, due to increasing prices in Dallas/Forth Worth and Houston, and 0.3% growth in the greater United States. Construction deliveries fell for the second year in a row as 450K SF of retail was brought online in 2016 on the heels of 804K SF in 2015.
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