AUSTIN—Austin is dealing with an increased demand for retail space.

That's according to a second-quarter report recently released by Marcus & Millichap. Retail vacancy in the metro area has slipped into the low-5 percent range--well below pre-recession levels--and is likely to dip further in 2014 as retailers follow new development in the region's northern suburbs, including Leander, Cedar Park and Round Rock.

As national discount chains, warehouse clubs and sizable specialty concepts, including Wal-Mart, Costco and Bass Pro Shops, maintain their focus on build-to-suit developments in the metro area, there has been no shortage of demand for shop space in existing centers. The combination of still-low interest rates, strong buyer demand and a shortfall of for-sale inventory has created a notable sellers' market in Austin.

In the single-tenant sector, cap rates start in the mid- to high-5 percent range for best-of-class deals, such as newer drugstores or corporate fast-food properties, while national restaurant or auto parts chains trade in the mid-7 to mid-8 percent range.

Demand for retail space will also rise in Austin's urban core as a variety of new developments, ranging from new multifamily projects to hotels, office towers and a new medical school, attract more visitors and residents to the area.

Of note:

Employment: Austin payrolls will rise 4.4 percent in 2014 with the addition of 39,000 jobs. During 2013, employers created 36,100 new positions.
Construction: Developers will complete 1.1 million square feet of retail space this year. This is a notable increase from 2013, when 460,250 square feet came online.
Vacancy: While completions will rise this year, much of the space slated for delivery is pre-leased. Similar to last year, the vacancy rate will dip 60 points in 2014, to 4.7 percent.
Rents: Tight conditions and the introduction of new, higher-end space will boost asking rents 2 percent this year, to $18.00 per square foot. Asking rents declined 2.2 percent in 2013, as lower-quality space comprised a disproportionate share of vacant stock.

Instant Insights /

Study Shows High Demand for Austin Retail

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