Heat Check: Austin Industrial Market Thrives Entering 2024

ARCO/Murray recently sponsored and spoke at the Bisnow Austin Industrial Outlook event which was well attended by Central Texas developers, brokers, contractors, vendors, and others. Paul Wagner, Vice President leading ARCO/Murray’s Central Texas office, participated in the first panel titled Navigating the Austin Industrial Market: Insights and Strategies for Success where he and other leaders in the industry pulled from their experiences to detail the current status of the Austin industrial market. Each of the event’s three panels had a unique topic to cover, but the main theme throughout the morning was the consequential effects of the rising supply of industrial facilities throughout Central Texas including rent softening, amenity inclusions, flexibility in product, site selection difficulties, and more.

The Numbers Behind the Growth

At the end of 2023, Austin industrial reports showed rapid job growth, low unemployment, and continued delivery of industrial product in the area. Per JLL’s Q4 2023 Austin Industrial Insight report, the Austin market received over 13M SF of industrial product in 2023 including 3.4M SF delivered in Q4.

The two major tenants in the market are Tesla and Samsung with the former opening its 4.5M SF Gigafactory in Austin back in 2022. Since then, Tesla has completed over 1.4M SF of additions to the area and Samsung is underway with a 3.2M SF semiconductor facility in Taylor, Texas, its largest in the U.S.

The investment in the area from Tesla and Samsung has already created ripples and is expected to keep driving demand as other companies look to follow suit or maintain their supply chain with the two giants.  

Rent Cools Off

The rapid increase in supply has led to higher vacancy rates and is resulting in softening rent and lucrative concessions for tenants. During the first panel, Omar Nasser, Principal at AQUILA Commercial, shared some of the recent concessions he’s come across as a leading industrial broker in Central Texas.

• Longer duration of free months of rent even on shorter leases
• Significantly smaller annual rent increase hikes
• Tenants having the ability to fully lease larger spaces that they can grow into but only paying for what they need day 1 (even up to half the space)

Tenant Market Driving Design

Due to the increased supply and higher vacancy rates, tenants can be more selective and demand a higher-quality product to improve workplace culture and better represent their company. The panelists touched on a variety of building and site features they see being incorporated in new industrial developments to attract tenants, including:

• Finished out speculative offices
• Larger electrical services and utility transformers 
• Full warehouse LED Lighting
• Fully conditioned warehouse space or insulation values & electrical loads for full conditioning
• Larger, higher end office space
• EV Charging
• Solar-ready facilities
• Higher end entry features with more glazing
• Taller clear heights
• Trailer parking
• Higher car parking ratios
• Dock packages with seals and levelers

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“I’d say the days of coming to market with a true cold, dark shell are over. Tenants are demanding more move-in ready type spaces.”

The demand for these features is drastically changing the design and construction of speculative industrial facilities by requiring maximum flexibility. Facilities need to be designed and built with the expectation that a tenant may want these features ready to go when they move in and aren’t willing to wait a few more months for TI design, permitting, and construction. This includes reinforcing the structural design to accommodate potential roof ballasted solar, improving electrical infrastructure to plan for future solar and/or EV chargers, installing knockout panels for possible windows, and more.

The increased need for flexibility and speed has led to the rise of the shallow bay, smaller tenant move-in-ready speculative suite product as well. Balcones Real Estate and ARCO/Murray recently finished Addison Business Park in Austin, TX and Westinghouse Business Park in Georgetown, TX. These two projects combined brought more than 60 move-in ready suites to the market with sizes ranging from 3,000 – 12,000 SF.

Outside of specific design changes, the favorable tenant conditions in the market are empowering tenants that may have been on auto renew for the past 10-20 years to test the market for a new space. The available rent concessions and improved quality of building features can be interesting to tenants that may be in an outdated space.

Addison Business Park – Austin, TX

Westinghouse Business Park – Georgetown, TX

Site Selection Difficulties

Given the larger volume of industrial product coming online and general difficulty capitalizing projects in today’s environment, it is even more important to find sites that don’t carry significant cost premiums. One of these cost premiums dominating discussion in the market right now is the availability of utilities – water, power, gas, sewer, telecom, etc. Lack of any of these utilities can create large on and offsite costs rendering some sites unattractive for development.

Other public improvements such as traffic signals, turn lanes, decel lanes, etc. also impact a site’s ability to get developed. Additionally, the supply boom has created strain on municipality offices and increased the length of the entitlement process in some areas.

Overall, the Austin industrial market heading into 2024 is in a strong place and there will be improved amenity offerings and facility design to accommodate the tenant friendly market conditions.  

Thank you for reading!
Contact the ARCO/Murray Central Texas team to discuss your next project.