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Limited Availability of Smaller Industrial Properties in Austin

Limited Availability of Smaller Industrial Properties in Austin

The Austin market is experiencing a boom in construction for large industrial developments, overlooking the demand for smaller industrial properties. The availability of smaller flex space has decreased, creating a challenge for tenants looking for space to support the operations of their small- to mid-sized businesses. Despite the stock of U.S. industrial property growing fastest in over three decades, shortages of smaller industrial spaces continue to persist.

According to CoStar, Austin’s flex space vacancy rate exceeds 10,000 square feet and stands at 9.4% with 1,714,342 vacant square feet. This rate is significantly higher than the vacancy rate for spaces ranging between 1,000 and 10,000 square feet, which is at 4.5% with 58,751 vacant square feet. The same trend is observed in availability. The availability rate for flex space in Austin over 10,000 SF is 13.7% with 2,497,214 available square feet. In contrast, the availability rate for spaces between 1,000 and 10,000 square feet is 5.5% with 72,116 square feet available. The gap in availability rates between smaller and larger industrial properties is currently the widest CoStar has ever recorded.

Acquiring and entitling a parcel of land big enough to build a large industrial property is nearly as extensive as doing so for a small parcel of land. Therefore, investors and industrial developers prefer to spend their time and resources developing large facilities to maximize their efforts. Thus, developers refuse to subdivide their space and lease to smaller tenants.

This quarter we saw zero deliveries for properties under 10,000 square feet. The low supply and low availability of small and mid-size industrial space should result in stronger rent growth for the sector. The Market Asking Rent PSF of flex space in Austin between 1,000 and 10,000 square feet for Q1 2024 is $19.27, $0.94 more than it is for flex space over 10,000 square feet. According to CoStar analytics, this amount has been increasing for the past 10 years and is predicted to continue to increase.

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