Austin's All-Time Low Vacancy
Austin’s retail market is extraordinarily healthy, according to experts at Bisnow’s Austin State of the Market event last week. That includes 4.8% overall vacancy, a historical low. (If vacancy is like percentage of body fat, then the Austin retail market is a bodybuilder.)
Nearly 400 attendees joined us at the Hilton Austin. Austin has 100M SF of existing retail product; only 500k SF is under construction now, and we absorbed 300k SF last year. Live Oak Gottesman CEO Rob Golding says demand is far outpacing supply, and pricing exceeds what’ll support new development. The only reason we’re not seeing more construction is because multifamily sucked up the land. (Apartments are so selfish.) Rob’s been busy helping Parkway reposition the retail in its Downtown core properties.
There are 19,000 multifamily units coming online in the next two years, but Momark Development prez Terry Mitchell says that sounds just about right. We underdelivered from ’09 to ’12 and are just catching up with demand. 55,000 people are moving to Austin each year, and they’ll need 23,000 housing units. Half of those should be multifamily, so we’ve actually got 4,000 units of wiggle room. (Or we need to start increasing the production of bunk beds.)
World Class Capital CEO Nate Paul (hanging out with co-panelist Liberty SBF VP of commercial lending Zach Murphy) is playing in both multifamily and retail. He’s breaking ground on 99 Trinity in June, a multifamily community by the Four Seasons, and says that even with increasing construction costs, it’s better to build than acquire properties. He’s also seeing tremendous retail opportunities, particularly in redevelopment. (He’s got a 50k SF one underway at 183 and Anderson Loop and is repositioning Galleria Oaks.) If Nate could only hear one song for the rest of his life, it’d be Lionel Richie’s Dancing on the Ceiling.
Development across all sectors should get easier as a result of CodeNEXT, says Mayor Pro Team Sheryl Cole (whom we snapped between KW Commercial’s Brentley Brinegar and Capital Title of Texas’ Steve Presti). It’ll include a rewrite of the land development code, which the City considers important to affordability in Austin. (Mayor Leffingwell says each page added to the code cuts down on affordability.) Austin added 23 people to the planning development and review team last year, but Sheryl says they clearly need to add more to expedite permitting.
Sheryl was interviewed by CohnReznick managing partner Chris Thomas, who admittedly was a little distracted—his 16-year-old daughter was driving herself to school for the third time (and had already had one incident). Sheryl could sympathize about letting kids out of the nest—her youngest son is heading to college at Brown in the fall.
IPA director Scott Lamontagne (here with Marcus & Millichap’s Mike Moffitt) says multifamily investment sales have been crazy popular, with his typical deal pulling in 125 CAs, over 20 tours (they should just hire an in-house docent), and ending up with four or five guys in best and final.
Zach (a fan of The Doors) likes to finance value-add deals with 50% vacancy or more. One-third of his national portfolio is retail, and he says Austin is a real anomaly. Because our market is so strong (better than Los Angeles’, he insists), he’ll go up to 95% LTV with good news money. The three things he looks at: Where the property is, sponsor, and future cash flow.
We snapped our sponsor Berkadia’s Brant Smith and Andy Hill. Brant says lenders are continuing to get more aggressive in underwriting in metros in the upswing (including all major Texas cities). Brant’s still monitoring multifamily deliveries, but so far absorption has been strong enough to merit it, so all systems are go.
Be sure to check out next week's publication, featuring our office and industrial experts.
