Why Austin Retail is Outperforming

Retail sales in Austin are above the national rate, despite a setback in this category.

Strong job growth and economic strength have spilled over Austin’s retail market. Combined with the tightening vacancy and modest deliveries, these factors stimulate tenant demand. The influx of residents throughout the past years has pushed retail sales above the national rate, even though construction remains stagnant.

Austin Retail Market - Vacancy Rate Trends - 2011 to 2015

Austin Retail Market – Vacancy Rate Trends – 2011 to 2015

According to data provided by Marcus & Millichap, Austin employers will generate 30,500 jobs this year, slightly more than last year’s 28,400 positions, registering a 3.3 percent increase in employment. Last year the annual outlook reflected a 3.2 percent rise in employment.

In Q1 2015 developers brought online 35,000 square feet of product. During 2015 just 500,000 square feet of space are expected to be delivered, significantly less than last year’s 726,000 square feet. The largest project under development is the retail portion of South Lamar Plaza. The project is an 82,000 square feet, mixed-use development consisting of retail, restaurants, theater space, and apartments scheduled to be delivered by mid-year 2015.

Austin Retail Market - Asking Rent Trends - 2011 to 2015

Austin Retail Market – Asking Rent Trends – 2011 to 2015

In Q1 2015 vacancy continued to decrease, clocking in at 4.9 percent. East Austin vacancy reached its lowest point in more than five years, settling at 2.1 percent after falling 120 basis points during the previous year.

Average asking rates reached $19.08 per square foot in Q1 2015 after climbing 6.7 percent year-over-year. Rent for single-tenant assets gained 7.6 percent to $18.10 per square foot in the first quarter, unlike the same time last year when rents declined 4.2 percent. Rent for multi-tenant properties rose 5.0 percent in the last year to $19.04 per square foot. Lack of new supply and tightening conditions of the market in the metro area will make rents push up 3.5 percent to $18.89 per square foot, topping the 2.8 percent increase in average asking rents registered in 2014.

Charts and data courtesy of Marcus & Millichap