TEXAS SNAPSHOT, SEPTEMBER 2008

Austin, Texas Industrial Market

Sallis

Industrial development continues at a positive pace in Austin. Although absorption in the Austin industrial market has moderated, new buildings continue to be completed and successfully leased. Unlike Austin’s office and retail development markets, which overbuilt during this last development boom, the industrial market has remained stable and continues to support new development.

Triple net rental rates in Austin for Class A industrial space range from $0.50 to $0.66 per square foot per month. The rate is variable depending on the concessions and tenant improvements granted by the developer.

According to the Second Quarter 2008 CB Richard Ellis MarketView, direct vacancy in the Austin industrial market is 13.14 percent. The North market currently sits at 10.70 percent direct vacancy, while the Southeast market has 15.77 percent direct vacancy.

The majority of industrial development in Austin is divided into two main industrial areas, the North and Southeast submarkets. Traditionally, development in Austin has been split with two-thirds going to the north and one-third going to the southeast; however, in this most recent round of development, the split has been closer to 50/50. The traditional driver of industrial space in the north, technology, has been performing poorly, while highway access in the southeast has greatly improved with the completion of State Highway 130 and improvements to Interstate 35 and SH-71.

On the southeast side of town, several new developments are putting large amounts of space on the market. Centerpoint at Colorado Crossing, for example, will add 264,937 square feet of flex and warehouse space. St. Croix, a newcomer to the Austin market, is developing this park. In addition, Southpark Commerce Center Phase IV and Southpark Phase III, Building 2, have added 536,350 square feet of warehouse space in Southeast Austin. Another project under construction in this submarket is the Burleson Business Park, a 403,200-square-foot industrial development.

Also in Southeast Austin, Trammell Crow Company and the Texas Foundation for Innovative Communities are planning the Texas Clean Energy Park, located adjacent to the Expo Business Park. The Clean Energy Park is expected to serve as an incubator for new companies, which will then spin off into nearby industrial space.

Travesia Corporate Park is being developed in North Austin by a partnership between Stream Realty and Champion Partners.

Moving north to the other most active side of town, Stream Realty’s Raceway Crossing has 249,500 square feet of industrial buildings planned. Stream Realty also has partnered with Champion Partners on Travesia Corporate Park, a new four-building development in North Austin. Additionally, there will be 450,000 square feet at Scarbrough, a tract of land where an as-of-yet unnamed business park is planned.

These new developments — both in the North and the Southeast submarkets — are all looking for strong, high-credit tenants to lease their space. With demand related to technology slowing, many developers are starting to look to clean energy manufacturing and distribution as one of the next major drivers of space.

In the near future, development in Austin will continue in the North and Southeast submarkets. These two areas have been accepted as locations for industrial space due to their proximity to transportation networks.

Additionally, these are the locations where land is still priced at a basis where industrial developments make sense. In many other locations in Austin, land has been priced at levels that cannot support industrial development and its accompanying lease rates.

The pace of industrial development is expected to slow down in Austin over the next year or so, because it will take the market some time to absorb all the space that has been added. The credit crunch and high price of land in Austin also have further dampened the ability of many developers to execute on planned developments.

— Lance Sallis is managing director of Trammell Crow Company in Austin, Texas.

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