257
The Austin industrial market is comprised of 37.2 million square feet, representing investment-grade buildings that are not owner-occupied and larger than 20,000 square feet. While that may seem like a smaller tertiary market in terms of square footage, Austin has proven to be a dynamic market, attracting interest and commitments from both creditworthy tenants and high-profile investors.
As of mid-year 2013, Austin’s industrial market is 12 percent vacant and trending in the right direction with positive absorption of 215,000 square feet, according to NAI REOC. There was no new notable construction from 2010 to 2012, which helped vacancy rates decrease as existing tenants expanded and new tenants entered the market. The recovery was highlighted by positive absorption of more than 2 million square feet during 2012. While some of the absorption was associated with short-term warehousing needs for Samsung’s $3.6 billion expansion of its semiconductor fabrication plant in northeast Austin, the market reached a state of equilibrium.
As the market stabilized, investment sales activity increased with institutional capital acting as a major player. In the past 18 months, several noteworthy transactions took place including:
– Karlin Real Estate purchased three former Dell facilities totaling more than 900,000 square feet; 297.9 acres of land from Dell; a 189,196-square-foot building occupied by Siemens; a 185,833-square-foot multi-tenant flex project on the Interstate 35 corridor; and a high-finish 89,100-square-foot flex building in north central Austin
– Industrial Income Trust (IIT) purchased 750,000 square feet of Class A industrial space in three projects in north central and southeast Austin
– DRA Advisors purchased the Weingarten flex portfolio, Summit Tech and Wells Branch Tech Center totaling almost 700,000 square feet
– Digital Realty Trust purchased Met Center 4-9, totaling 337,000 square feet in the southeast submarket. The property includes two buildings operating as data centers
– PS Business Parks expanded its presence with the acquisitions of McNeil 8 and 9 and McKalla 2, totaling 226,000 square feet
– Stoltz Management Co. purchased the 155,545-square-foot Commerce Center South from Pacific Realty Associates along with a 35.3-acre development site
One key point from the activity above is the presence of new institutional investors in the Austin industrial market, including Karlin, IIT, DRA and Stoltz. The list of newcomers should continue to grow as investment groups are looking for stable markets to deploy capital with attractive risk adjusted returns. Austin remains a hot market for investors due to its central location, proximity to major markets in Texas, business- and tax-friendly environment, population and job growth and strong employment base.
As absorption continues to improve and the economy expands, developers are taking on the risk of speculative development. Clarion Partners is developing the first phase of Heritage Crossing, which will include three buildings adjacent to I-35 in far north Austin totaling 450,000 square feet, with the first two buildings scheduled for completion by the end of the year. Zydeco Development has completed a speculative 172,000-square-foot flex building in southeast Austin at Met Center, and two 120,000-square-foot warehouse buildings at Pecan 130 Business Park are under construction in the city of Pflugerville with substantial pre-leasing activity and incentive packages available from the city.
Austin has come a long way since the last real estate cycle and continues to become a more diverse marketplace that is not as reliant on its previous major industries of government, education, technology and semiconductor fabrication.
As Austin continues to attract higher-finish industrial tenants, owners and operators of industrial buildings will need to cater to this requirement. Major investors will continue to pursue opportunities, and Austin’s largest industrial landlord will soon be someone other than GE, as it is in the process of selling almost 3 million square feet of assets in Austin as part of a national portfolio. Austin is no longer a sleepy university town with a singular focus but a dynamic marketplace with many attractive investment qualities and opportunities.
— Sam Owen, vice president, Stream Realty Partners