Austin Industrial Market Nudges 2001 Levels

AUSTIN-The state capital's industrial market has marked a five-year milestone, inching its way back to 2001 levels in rate and occupancy. The hot-off-the-press numbers reflect a market poised for additional gains as the year winds to a close.

Austin's industrial market is the smallest of the state's Big Four, but its climb back hasn't been easy due to the amount of flex space: nearly 23 million sf that held the heart of the high-tech market during its early development years in the Central US. Colliers Oxford International Inc.'s research team of Matt C. Levin and Ryan Kasten say the flex space clearly has become a magnet for call center tenants, with rates jumping 8% in the third quarter and occupancy now at 84.1%. The team's third-quarter numbers peg the average rate at 66 cents per sf, up a full nickel for research and development space.

In comparison, the 11.45 million sf of warehouse product is 89% full, picking up a 1.2% gain in the past quarter. It gained two cents on the rate, driving the average to 45 cents per sf. In the manufacturing arena, its 3.43 million sf is 93.4% filled, up 1.3%. But, its rent dipped one penny to 38 cents per sf.

"We've had absorption in practically every quarter for 18 months, but rates have remained relatively stable," Kasten tells GlobeSt.com. "Now, we're starting to see the first sign of a rise in rental rates." The national average is 75 cents per sf versus Austin's overall of 59 cents per sf, triple net.

The largest flex deal in Q3 was Farmers Insurance Co., which took 152,367 sf for a call center at Vista Business Park. The deal pushed absorption marketwide to 361,392 sf, according to Colliers' researchers. The third quarter ended with overall occupancy at 84.6% or a 1% climb from Q2.

Kasten says the chief selling point for the flex market is the adaptability in the parking ratio, allowing truck courts to be striped to get more spaces to accommodate the call center trade. Colliers flex product, including Building E at 106 Old Settlers Rd., is running close to capacity. The research team is relatively confident that any space that returns is sure to come to market at a higher rate.

Planting even more optimism into the market is a rumored 600,000-sf deal by Houston-based Eagle Global Logistics, but how much lands and where remains to be seen. The company already has a piece of Dell Inc.'s campus.

With the market picking up, the researchers say local developers are ready to start swinging hammers on spec space in the southeastern corridor. Trammell Crow Co. has just broken ground on 226,800 sf in two more buildings for the Expo Center. Hill Partners Inc. is planning to break ground on 378,792 sf for Airport Commerce Park in December and Endeavor Real Estate Group is pushing for a January start on the 202,000-sf Southpark Commerce Center III. The common factor is all are close to Austin-Bergstrom International Airport, Texas 130 and Interstate 35. "With the new construction, it will be interesting to see how that affects our market," Levin says. "There hasn't been any major construction in the recent past."