AUSTIN RETAIL | Q1 2020

Quarterly Market ReportAPRIL 2020

HOUSTON | AUSTIN | SAN ANTONIO

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Supply & Demand

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EXECUTIVE SUMMARYOccupancy at 95.9%

Net absorption in the Austin retail market stood at 458,000 sq. ft. in the first quarter—up from 392,000 sq. ft. in Q4 2019—while leasing activity included 755,000 sq. ft. of signed deals. The overall occupancy rate increased slightly by 10 basis points quarter-over-quarter, although remained unchanged year-over-year at 95.9%. The retail market saw overall average asking rates increase marginally by $0.04 per sq. ft. quarter-over-quarter to finish at $21.74 on a triple-net basis. A year ago, average rates were at $21.50, representing a 1.1% increase.

Economic indicators

The Federal Reserve Bank of Dallas reported that the Austin economy expanded at a strong pace in February. The unemployment rate held steady, and employment growth was strong. Austin added jobs at a 4.2% annualized rate, or a net 11,730 jobs, in the three months ending in February. Recent industry growth was led by the other services and manufacturing sectors, which added 1,260 net jobs and 1,080 net jobs, respectively. Additional sectors that experienced strong gains were professional and business services at 2,600 jobs, leisure and hospitality at 1,720 jobs and information at 480 jobs. Most of the data included precede the coronavirus (COVID-19) outbreak in the U.S.

Market Indicators

Current Q1 2020

Prior Quarter Q4 2019

Year Ago Q1 2019

Vacancy Rate (%) 4.1 4.2 4.2

Net Absorption (SF) 457,808 391,664 88,681

Leasing Activity (SF) 754,803 742,118 807,306

Deliveries (SF) 444,179 319,548 166,592

Construction (SF) 1,489,774 1,686,019 1,638,780

Inventory (SF) 95,573,352 95,129,173 94,210,817

Avg Asking NNN Rent ($) 21.74 21.70 21.50

MARKET OVERVIEWSupply and demand

The Austin retail market absorbed 458,000 sq. ft. and delivered 444,000 sq. ft. during Q1 2020. Of the new construction delivered so far in 2020, 75% has been leased, and of the 1.5 million sq. ft. still in the pipeline, about half has been spoken for. Strong population growth and above-average job growth had all underscored Austin’s solid fundamentals. The new rooftops and jobs have driven demand for retail, which has led to an occupancy rate at or above 95.0% for the last five years, prior to the coronavirus (COVID-19) pandemic.

Investment sales activity

Real Capital Analytics data reports quarterly retail sales volume for Q1 2020 in the Greater Austin area at $144.3 million, down slightly compared to this time last year at $151.3 million. The entire capital composition for buyers in 2020 was made up of 100% private investors. For sellers, the majority was 71.1% institutional and 28.3% private investors.

Leasing activity

Leasing activity remained steady during the first quarter, with a total of 444,000 sq. ft. leased in the Austin market—compared to 320,000 sq. ft. at this time last quarter. The amount of square feet leased by submarket had Cedar Park leading the way with 336,751 sq. ft. (45%); and Round Rock in second at 99,359 sq. ft.). The largest lease signings occurring in January 2020 included Furniture Mall of Texas signing 95,000 sq. ft. and Urban Air Adventure Park signing 50,000 sq. ft., both in Shops in Tech Ridge at 12901 N I-35 Highway in the Northeast submarket.

Asking NNN asking rates

The Austin retail overall triple-net average rates are at $21.74 per sq. ft., an increase of $0.24 from $21.50 a year ago. Rent growth has varied across Austin submarkets, and with additional space likely coming available in Austin, tenants may have more leverage than at any time in the last decade with regards to negotiating rental rates, terms, tenant improvements and concessions. Disruptions from COVID-19 will also have an impact on commercial real estate landlords and tenants as difficult decisions are made to adapt to these sudden changes. Many small tenants—particularly retail tenants—have seen revenue drop 50% to 100% in some cases and simply can’t pay their rent. For companies that qualify, the CARES Act recently passed by Congress provides

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Quarterly Market Report

Occupancy

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Historical Investment Trends - Sales VolumeSource: Real Capital Analytics

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AUSTIN RETAIL | Q1 2020

at least two months’ rent and wage relief for companies of 500 employees or less; landlords—many of which are also struggling, as they receive multiple rent relief requests while still having to pay property expenses and mortgage payments—expect tenants who are able to do so to apply for these funds in order to pay rent.

Austin area home sales hold steady in March

Local shelter-in-place orders that went into effect on March 24 had little impact on March home sales, according to the Austin Board of REALTORS®. In March, residential sales in the five-county metro increased 2.2% year-over-year to 3,042 sales and median price jumped 11.7% year-over-year to $335,200. Monthly housing inventory declined 0.7 months year-over-year to 1.6 months of inventory, and average days on market decreased from 65 days to 54 days. “For most of March, it was still ‘business as usual,’ and REALTORS® adapted early to continue serving homebuyers and sellers safely,” Romeo Manzanilla, 2020 Austin Board of REALTORS® president, said. “Declines in listing activity and pending residential sales in March indicate that we won’t begin to see the true impact of COVID-19 on the housing market until our April report.”

The coronavirus outbreak

Economic analysis firm TXP Inc. recently reported to Austin City Council members that job losses in the Austin area during the coronavirus pandemic could top 250,000. Many unknown factors will determine the area’s future forecast, including the timing of receiving aid from the CARES Act—the federal coronavirus stimulus package, the impact to the city’s sales tax revenue, and the repercussions of decreased demand in the leisure and hospitality job sector, to name a few. Prior to the coronavirus outbreak, Austin had strong economic momentum, and the current statistics largely reflect the environment before the pandemic.

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Quarterly Market Report

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AUSTIN RETAIL | Q1 2020

Average NNN Asking Rent

$17.19

$18.18

$19.07

$21.22

$21.82

$21.84

$22.18

$23.74

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$25.29

$27.74

$33.33

$10 $15 $20 $25 $30 $35

Georgetown

Northeast

Round Rock

North/Domain

Hays County

Cedar Park

Northwest

Central

South

East/SE

Southwest

CBD

Completions Year-To-Date

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Northwest

Central

Round Rock

East/SE

Hays County

Northeast

South

Georgetown

Cedar Park

Thousands (SF)

Leased Available

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CBD

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Northwest

Central

South

Northeast

Round Rock

Hays County

Southwest

Cedar Park

Georgetown

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Leased Available

Under Construction

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Quarterly Market ReportAUSTIN RETAIL | Q1 2020

Information and data within this report were obtained from sources deemed to be reliable. No warranty or representation is made to guarantee its accuracy.

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Austin Retail Submarkets

1. CBD

2. Cedar Park

3. Central

4. East/Southeast

5. Georgetown

6. Hays County

7. North/Domain

8. Northeast

9. Northwest

10. Roundrock

11. South

12. Southwest

AUSTIN RETAIL | Q1 2020

Quarterly Market ReportAPRIL 2020

NAI Partners Austin Office 701 Brazos Street, Suite 320Austin, Texas 78701

tel 512 580 6208

www.naipartners.com/austin

Leta WausonDirector of Research

leta.wauson@naipartners.comtel 713 275 9618

MARKET OVERVIEWSubmarket Stats

Submarket

Net Rentable Area

(SF)Vacancy

(%)

Q1 2020 Total Net Absorption

(SF)

YTD Total Net Absorption

(SF)

Q1 2020 Leasing Activity

(SF)

Q1 2020 Deliveries

(SF)YTD Deliveries

(SF)

Under Construction

(SF)

Total Avg Asking Rent NNN ($/PSF)

Austin Total 95,573,352 4.1 457,808 457,808 754,803 444,179 444,179 1,489,774 21.74

Submarket

Net Rentable Area

(SF)Vacancy

(%)

Q1 2020 Total Net Absorption

(SF)

YTD Total Net Absorption

(SF)

Q1 2020 Leasing Activity

(SF)

Q1 2020 Deliveries

(SF)YTD Deliveries

(SF)

Under Construction

(SF)

Total Avg Asking Rent NNN ($/PSF)

CBD 2,357,551 4.5 -34,894 -34,894 8,939 0 0 5,000 33.33

Cedar Park 8,494,089 3.8 143,734 143,734 48,503 125,000 125,000 272,003 21.84

Central 8,692,775 4.5 -35,037 -35,037 35,977 21,900 21,900 53,926 23.74

East/SE 6,815,637 3.2 90,345 90,345 46,656 28,694 28,694 33,574 25.29

Georgetown 7,159,592 5.8 126,895 126,895 19,424 93,600 93,600 509,428 17.19

Hays County 9,691,151 3.2 62,247 62,247 17,103 53,023 53,023 121,670 21.82

North/Domain 7,429,910 3.2 4,311 4,311 43,756 0 0 16,000 21.22

Northeast 7,614,141 6.5 19,995 19,995 336,751 56,111 56,111 85,815 18.18

Northwest 9,237,470 3.6 14,131 14,131 28,639 0 0 52,084 22.18

Round Rock 7,895,434 5.3 11,134 11,134 99,359 24,116 24,116 107,008 19.07

South 11,414,568 3.4 47,982 47,982 28,969 41,735 41,735 94,908 23.80

Southwest 8,771,034 3.7 6,965 6,965 40,727 0 0 138,358 27.74