Texans by nature have often portrayed a “go big or go home” attitude that we apply to essentially everything we do – and that approach certainly applies in the world of commercial real estate. As it turns out everything is in fact bigger in Texas and as major companies turn their eyes towards growing markets within the state, Austin has garnered a lot of attention – and rightly so.
Despite the difficulties in supply/demand created in part by the COVID-19 pandemic and compounding supply chain issues, the industrial market specifically has continued to boom even when other markets have taken a hiatus. CBRE recently ranked the market highest for investment opportunities against staunch competitors like Dallas/Fort Worth and Los Angeles, so it certainly appears that everything is going extremely well for Central Texas’ growth and development.
While much of Central Texas is extremely attractive to companies and future residents due to its low unemployment rate, lack of state income taxes, and corporate incentives on offer, commercial real estate (especially within Austin) can be a unique engine.
Here are some quick tips to help navigate the Central Texas Industrial Market from Paul Wagner, Vice President in ARCO/Murray’s Central Texas Office:
Tip #1: Understand The Timeline
Within Austin specifically, the general entitlement process and getting through site plan approval can take significantly longer than other Texas markets. Although Austin has been working to make things more efficient, a real delay exists in moving through the site plan approval and permitting process which on average is taking 8 to 12 months. The truth is every project site offers a unique set of requirements some adding additional steps to the overall approval timeline. We’ve seen more complex projects with heavy off-site infrastructure improvements take upwards of 18-24 months. That’s an extremely broad timeline range with a lot of variables at play. While there isn’t an easy button when it comes to obtaining a permit, you can increase efficiency via a more streamlined design and construction process.
Tip #2: Understand Potential Site Restrictions & Off-Site Requirements
Right now, real estate in Central Texas is expensive – and there is no doubt that being a buyer or lessee in this market can be especially tough. Land value is increasing along with ever-growing demand and when it comes to prime spots for industrial developments, many sales are turning into bidding wars. Let’s say you find the land site for your development – you’ve ensured the zoning is suitable for your project (or you understand your path to re-zoning approval), but what are you getting into in terms of site restrictions?
As the Austin industrial market moves further out, especially in locations towards the south, many of these regions don’t have the road and/or utility infrastructure in place. Getting water and sewer to these areas can be difficult and expensive. Understanding the critical path schedule due diligence items – i.e. Traffic Impact Analysis (TIA) scoping meeting and Service Extension Request (SER) – is important early on to understand the potential road and utility infrastructure components to your development in Austin or the Austin ETJ. The more information you have up front, the better you can plan for your project successfully.
Tip #3: Know the Austin Environmental Code Implications
As a community striving to reduce climate impact and increase sustainability awareness, Austin has implemented its own set of unique environmental restrictions published within the Environmental Criteria Manual (ECM). There are a few items in the ECM that are especially restrictive to industrial development. One of them is a Cut/Fill restriction that doesn’t allow for more than 4 feet of cut to fill in depth for all sites unless you can meet some specific exclusions or be granted an administrative variance, which still only gets you to 8 feet of depth. It is possible to get a variance beyond this 8’ depth but it is difficult and not as common. Restrictions on slope requirements limit how much you can impact existing slopes to only 10% of the areas with building footprints. If the site is near a hazardous materials pipeline – where excavation is restricted nearby, new construction can’t occur within a specific radius without adhering to some additional strict safety standards.
All of this isn’t to say that these codes make it extremely difficult or impossible to build – its highly navigable given the right experts are brought on board as early as possible to avoid surprises late in the development. If these potential challenges are being worked through from the outset with experts who know the environmental manual – developing industrial products in this market is more than achievable.
Tip #4: Expedite Procurement
It seems that just about everything has been impacted by the supply chain in the past year and construction materials are certainly not exempt. From roofing materials and joists/decking to fixtures and finishes, it’s helpful to partner with someone who can lock in pricing earlier in the process and ensure delivery dates despite supply chain restrictions and slowdowns, so you can prepare in advance and develop your proforma accordingly. When pursuing the traditional method of construction procurement – ie. waiting for a full set of drawings before obtaining final contractor pricing – you’re delaying material procurement and therefore exposing the project to an additional 2 to 4 months of commodity inflation & schedule risk. Creating a scope of work and schematic design set with sufficient detail allows for full material procurement and pricing risk transfer from the owner to the design-builder thus eliminating the need to wait for full construction drawings to start the shop drawings required to deliver the key building components to the site. Streamlining the design, pricing, & construction process is more critical than ever in today’s environment.
You are likely now asking – so why is any of this a good thing?
Overall people are excited about this regional market – and it surely has a lot to offer. Industrial leasing continues to be very strong – with over 122.6 Million SF of industrial leased in Q2 of 2021 according to JLL. Vacancy fell below the 5% threshold and with high pre-leasing success rates – it’s estimated that there is over 500M currently under construction. Both San Antonio and Austin rank respectively within the Top 10 for projected growth markets according to CBRE, Austin just trailing behind San Antonio’s 3.9% rate with 2.7%.
As national design-builders, ARCO-Murray has made it a point to learn the markets that we perform services in extremely well. We’ve completed projects within Central Texas for 25+ years and recently opened a Central Texas office. Currently, we have active projects in many of the major sub-markets within the Austin/San Marcos/San Antonio region. Our overall advice? Find partners who can perform the proper upfront due diligence and have in-house resources to execute on everything from site selection and design to construction and occupancy. You’ll want a single point of contact who can streamline the entire process and rally around the mantra ‘go big or go home.’
If you have a question on the Industrial Sector or would like to discuss an upcoming opportunity, contact us today: