Comparing 1st Quarter 2010 to 1st Quarter 2009
Total supply reached 73 million square feet resulting from the roughly 600,000 SF to new space added to the market. Vacancy rose to 14.4% indicating a 9.8% or 1.3 percent-point increase from the first quarter of last year. While vacancy has increased significantly, 60% of the rise of vacancy is due to speculative construction. The predominate cause for declines experienced in the industrial submarket can be attributed to an overheating of the market with the secondary cause being a contraction in demand. The demand for industrial space appears to be gaining strength, with nearly 40,000 SF of positive absorption reported this past quarter after experiencing 1.3 million square feet of negative absorption in 2009. Construction also declined in response to the increases in vacancy with less than 81,000 SF under construction this quarter. Rents experienced moderate declines of $0.20/SF and $0.43/SF for Warehouse/Distribution and R&D/Flex, respectively. Overall, rents and occupancy rates appear to be stabilizing.
See the Industrial Reports Page for the full report. Courtesy of Grubb and Ellis.
Best quotes:
While it is evident that leasing fundamentals have improved, the market is far from making a complete turnaround. Presently, there is 10.5 million square feet of industrial space sitting dark across the city holding vacancy at a lofty 14.4 percent.
Even though many companies may expand profitability this year, it will be at least until 2011 before Austin experiences a rebound in leasing demand sufficient to fill the excessive amounts of vacant space left behind by the recent recession.
Forecast
· Tenants will continue to take advantage of early renewal packages, including free rent, in order to reduce their overall occupancy costs.
· New construction will be limited to build-to-suit development until excess space is absorbed and lending restrictions ease.
· Asking and effective rental rates are expected to further decline before they reach bottom sometime late in 2010 or early in 2011.
· Small owner/user sales activity will increase but the number of properties on the market will far outpace available buyers.
· According to Angelou Economics, Austin’s economy will experience mild job growth in 2010 before returning to form in 2011, with employment increasing by 9,200 and 17,100, respectively.
Note: The data analyzed surveys multi-tenant, single tenant, and owner occupied buildings at least 20,000 SF in size. Other reports do not include owner occupied buildings, which results in a 30 million square foot difference in survey size. Cushman & Wakefield reports a vacancy rate of 17.7% for the 4th Quarter 2009 for its 43.8 million square foot database.
