As one of the fastest-growing markets of the past decade that continues to make headlines for high-profile developments and corporate relocations, Austin has had some economic and demographic cushion from the headwinds brought on by COVID-19 over the past year.
While leasing and investment sales activity essentially froze at the onset of the pandemic, as it did in virtually every major U.S. market, Austin’s strong growth in office-using jobs, natural pace of in-migration and vibrant culture all contributed to a swift and stable rebound.
With a full year of pandemic living now under the belt, it’s a good time for a by-the-numbers evaluation of the public health crisis’ impacts on various property types within the state capital. In addition, it’s an appropriate point at which to reflect on the degree to which pandemic-accelerated trends like online shopping and working from home are going to influence future deals and projects. These shifts in consumer behavior have major implications for all commercial asset classes.
To that end, Texas Real Estate Business conducted a roundtable discussion with leasing and investment sales professionals representing multiple property types at the Austin office of NAI Partners. What follows are their edited responses:
Tyler Janes, Senior Vice President
Tyler Jaynes: Industrial’s Staying Power Is Real
“High demand for industrial space in Central Texas remained consistent heading into 2021. As the world was already heading toward widespread e-commerce utilization before COVID-19, many businesses were forced to pivot to online sales, accelerating the need for larger distribution centers and/or new locations. There is no doubt that the vast majority of businesses will sustain and advance these practices over moving forward.
Austin has historically been known for its technology; however, the industrial segment is quickly turning into the next major mover for our market.
Austin’s natural geography provides a centralized location for manufacturers and distribution centers to access Dallas, Houston and San Antonio to maximize efficiency for many users. Austin-Bergstrom International Airport will also continue to play a pivotal role in the supply chain of our businesses.”
Ryan McCullough, Senior Vice President
Ryan McCullough: Low Interest Rates Drive Investment
“The Austin private office and industrial sales market remains resilient. Despite the concern and hesitation throughout 2020, we were fortunate to see a solid stream of transactions throughout the year. Ultimately, office and industrial acquisitions by private investors across Austin only decreased by about 7 percent year-over-year in 2020.
As the pandemic continues to shift workforce plans within the Class A office sector, the Class B suburban sector remains strong. With hopefully the worst behind us, we believe the market will continue to strengthen throughout 2021 and reach pre-pandemic levels, due largely to historically low interest rates and an outlook with much more clarity.”
Kevin Murphy: Retail Leasing Remains Healthy
Kevin Murphy, Vice President
“Retail leasing activity in Austin remains healthy, as evidenced by a market-wide occupancy rate above 94 percent. The biggest plays involve the backfilling of big box spaces to specialty grocers, logistics centers and repurposed uses to flex and residential.
Restaurants operators and their spaces are being absorbed via new-to-market concepts, but we’ve also seen expansions by food and beverage operators that were well-capitalized during the pandemic.
Essential retailers such as grocers, pharmacies, banks, home improvement stores and gas stations continue to grow and expand strategically. Careful optics toward nonessential retailers such as movie theaters, gyms, apparel and salons will dictate how well they rebound. Some signs already point toward a rapid recovery in the gym space, while salons are seeing the same positive upward trend.”
Joe DeCola: Brick-and-Mortar Retailers Innovate
Joe DeCola, Vice President
“Thanks to sustained population growth, Austin’s neighborhood retail centers continue to perform well, and new projects are moving forward. Rents have generally stayed the same while land and materials prices have continued to rise.
Retail is always a strong sector. The successful brands are those that continue to adapt to the needs of their clients, starting with something as simple as a restaurant creating patio space. Junior and larger box retailers are offering free ship-to-store options for online orders, driving the consumer into the store where there is the opportunity for impulse buys.”
Gary Hebert: Multifamily Growth Doesn’t Skip A Beat
Gary Hebert, Associate
“Austin is one of the fastest-growing cities in the United States. There are approximately 2,500 new multifamily units planned downtown and approximately 14,000 new units planned citywide.
This pace of development, coupled with the impact of COVID-19, has led to leasing challenges in certain segments of the market. We believe this to be temporary as the vaccine rollout continues.
Corporations continue to relocate to Austin as tourism and convention businesses come back on line. Austin’s population growth, capital in-migration and low interest rates have created a strong sellers’ market.
With expectations that federal eviction moratorium will wane in the coming months, we anticipate multifamily will be a strong performing asset class in the second half of 2021.”