AUSTIN—Austin is dealing with an increased demand for retailspace.

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

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

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

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

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Of note:

  • Employment: Austin payrolls will rise 4.4percent in 2014 with the addition of 39,000 jobs. During 2013,employers created 36,100 new positions.
  • Construction: Developers will complete1.1 million square feet of retail space this year. This is anotable increase from 2013, when 460,250 square feet cameonline.
  • Vacancy: While completions will rise thisyear, much of the space slated for delivery is pre-leased. Similarto last year, the vacancy rate will dip 60 points in 2014, to 4.7percent.
  • Rents: Tight conditions and theintroduction of new, higher-end space will boost asking rents 2percent this year, to $18.00 per square foot. Asking rents declined2.2 percent in 2013, as lower-quality space comprised adisproportionate share of vacant stock.

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