Chapter Profile: NAIOP Austin

A strong local economy and continued population growth are pushing ongoing CRE opportunities.

Austin has remained one of the fastest-growing large cities in the United States for more than a decade. Touting itself as the “Live Music Capital of the World,” Austin is also a center of technology and business. According to a December 2023 report by CBRE, 66 U.S. companies have relocated their corporate headquarters to the city over the past five years, with half being in the tech industry.

Development magazine reached out to NAIOP Austin President Brenda Studt, development director for United Properties, to gain insight on the CRE trends and issues happening in and around the Lone Star State’s capital city.

Development: What are the market conditions for member companies in your area?

Studt: Despite the ongoing challenges facing the national economy, Austin’s commercial real estate market remains strong and poised for growth. The Texas capital added nearly 35,000 jobs year over year, and Austin’s low unemployment rate of 3.5% falls below both state and national levels. Recent expansions by Samsung and Tesla, along with Elon Musk’s announcement to move social platform X to Austin, serve as catalysts for future corporate expansions and relocations, signaling a promising outlook for new jobs in the Austin market.  

Although the office market is showing signs of recovery, office investment is estimated to remain subdued due to elevated inflation, steeper costs of capital and muted demand. Approximately 382,000 square feet of new office product was delivered in the first quarter, driving vacancy rates to 27.3%. Additionally, according to Q1 2024 data, approximately 5.3 million square feet of sublease space remains available citywide. Persistent hybrid work arrangements and slowing job growth among tech firms continue to challenge overall demand. As leases expire, tenants are downsizing and trending toward less square footage in newer, higher-quality assets. Overall asking rents are projected to remain flat, with bolstered concessions and higher tenant improvement allowances.

Austin’s industrial market continues to see rapid growth. Nearly 2.5 million square feet of new product was delivered in the first quarter. This new supply will continue, as 16.3 million square feet, or 12.2% of the market’s inventory, is currently under construction. This abundance of new supply has increased vacancy 380 basis points year over year to 9.1%. New deliveries are 48.9% preleased and will outpace demand in the near term. The Austin industrial market realized 3 million square feet of positive absorption during the first quarter of the year, the first time demand has outpaced supply since Q1 2022. Rental rates have grown 12.3% year over year, reaching a historical high, and are projected to continue increasing due to elevated inflation and an abundance of new product commanding higher rents. Class A warehouse space accounted for 45.2% of first-quarter transactions.

While multifamily demand continues to hang on, an abundance of new supply has increased Austin’s vacancy rate to 14%. Even so, the market saw over 8,500 units absorbed in the first half of 2024. Vacancy rates were projected to peak by mid-2024, after which new supply will slow, resulting in improved absorption. Because of increased supply, Austin’s multifamily asking rents have declined 5% year over year to $1,595 per unit. This comes on the heels of unprecedented rent growth — 21% year over year — from 2021-2022. On the transaction side, Austin is seeing higher cap rates along with a year-over-year decline of more than 60% in overall volume.

Strong demand and limited supply continue to push retail into the limelight. A fast-growing population and rising household incomes are supporting catalysts. Retail posted 1.9 million square feet of absorption over the trailing 12-month period, which is a historical high. Developers introduced 2.8 million square feet of new retail space in 2023, primarily driven by suburban expansion in the form of new, large occupants such as grocery stores, discount retailers and general merchandise stores. Austin’s availability rate of 4.1% remains near all-time lows. The current pipeline includes 1.5 million square feet under construction, with 75% of that space preleased. With vacancies just above 3%, average asking rents are increasing at a pace of 4%, and given supply constraints, rents are expected to continue increasing.

Development: What are the challenges you’re facing in either the business or regulatory climate in your area?

Studt: Our members are facing a variety of headwinds, including inflated land basis, unstable construction material and labor costs, weakening demand, increased supply or declining occupancy across all asset categories, stringent underwriting standards, rising costs of capital, higher interest rates, challenging entitlement processes and increased fees, a lack of readily available utilities, and a lack of affordable housing inventory. Despite these ongoing challenges, Austin’s commercial real estate market remains fueled by a strong local economy, favorable business climate and continued population growth.

Development: What are the big opportunities in commercial real estate in your area right now?

Studt: Austin remains an immature market poised for continued growth. While inbound migration has slowed slightly, a strong business environment and other essentials remain, which should continue to draw business expansions to the area.

A few specific opportunities in the Austin market include the following: 

• Capital markets’ continued interest in Class A warehouse industrial facilities. 
• Higher home prices and low single-family inventory are driving demand for build-to-rent and multifamily product. Simply put, it is 2.5 times more expensive to buy a single-family home than to rent in today’s economic environment. This increased demand should help to accelerate absorption of the oncoming multifamily supply. 
• Acquisition of distressed real estate assets. 
• Public-private partnerships.

Development: What are some of your chapter’s legislative priorities?

Studt: As a relatively new NAIOP chapter (formed in 2020), our Board of Directors is building a strong legislative foundation. We have recently identified three primary issues impacting membership: Texas regional infrastructure, Austin city policy, and incentive and tax credit opportunities. In addition, our Executive Leadership Team participates in various roundtables with NAIOP Corporate and other Texas chapters and supports the broader NAIOP legislative initiatives of adaptive reuse and tax policy affecting the commercial real estate industry.

Development: Education is an important part of NAIOP’s mission. Have there been educational sessions specific to your chapter recently?

Studt: Our chapter has participated in several educational sessions this year: 

• January: A Texas and Austin political landscape program 
• February: An annual economic update and outlook meeting
• March: An economic development and Opportunity Austin panel program
• April: An annual pitch-and-putt golf event where we all learned how to improve our short game
• May: A project tour and case study of T3 Eastside Austin with Hines
• June: A half-day real estate summit with the Central Texas Commercial Association of Realtors and CCIM

Development: What is your chapter doing to cultivate the next generation of leaders in the commercial real estate industry?

Studt: In addition to the broader membership supporting the Developing Leaders mission and spirit, our Developing Leaders committee has implemented a mentor program that pairs experienced NAIOP Austin members with Developing Leader members. Each mentor has a group of four to six mentees who meet regularly to exchange insights, host discussions and project tours, and simply make connections. Participant feedback has been overwhelmingly positive, highlighting the program’s effectiveness in fostering professional growth and development. 

Jonathan Rollins is the managing editor of publications for NAIOP.

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