1st Quarter Austin Industrial Leasing

industrialIndustrial Market Trends Austin, Grubb & Ellis Research, First Quarter 2009

The Austin Industrial market gave back 592,379 square feet of Industrial lease space in the first quarter of 2009, marking consecutive quarters in the red and the sixth consecutive quarter with an increase in vacancy.

Large spaces were vacated across a range of industries as businesses looked to consolidate or vacate their places of business. 

The overall asking rate for industrial space fell $.07 or 1% in the first quarter$7.44, the current average per square foot is at the lowest level since first quarter of 2007.

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1st Quarter Austin Job Growth

jobsAustin Business Journal
April 17, 2009
Austin fighting back; jobless rate drops for 2nd month

For the second consecutive month, Austin’s unemployment rate has decreased as the region tries to regain the losses it’s sustained in the recession.

Austin added 5,100 jobs in March reducing unemployment from 6.3% in February to 6.2%. In the past year, the area has added 3,300 jobs for .4% growth. Although this number is slight, growth of any kind is seen as very positive with job losses mounting elsewhere across the country.

NewGeography.com lists Austin as the #1 big city for employment potential.  Despite job growth rates of 1% in 2008 this modest number combined with Austin’s long term potential for creating new jobs, were the reasons noted by the website.

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Is the U.S. Economy Showing Signs of Recovery?

economy upA look at recent U.S. Economic news suggests that the Nation’s Economy is headed in that direction primarily due to the recent monetary liquidity inserted by the Fed. Does this mean the recession is over? No, but we may be close to bottoming out and the recovery may be achieved more quickly than previously projected.  A “V” shaped recovery is being talked about with a “bottoming out and quick uptick”.  Read on …

US Economy Could Recover Much Sooner than Expected
CNBC, Albert Bozzo, 4/9/09
A growing group of economists believe that the recession will not drag on as long as expected. These economists see a “V” shaped recovery similar to the 70’s and 80’s recoveries. The reasons for the optimism:
1. Easing of the credit crunch
2. Improvement in consumer spending
3. Better Auto Sales
4. Close to bottom out in housing market
5. Less grim job picture
Bottom line is that the recession isn’t over but the end is closer than many think. Some economists are projecting a flat or slight drop in the second quarter followed by sustained growth in the 3rd quarter.

“The velocity of downturn is lessening,”

says John J Castellani, chief economist and president of the Business Roundtable.

The Recovery Begins
Forbes.com, Brian Wesbury, Robert Stein, 4/7/09.
As of Friday, April 3 the Dow Jones is up 22.5% in less than a month, the NASDAQ is up 27.8% and the S&P 500 is up 24.5%. What does this mean? According to Brian Wesbury and Robert Stein, economists at First Trust Advisors in Wheaton, Illinois, it means that the Economic Recovery has begun. Specifically, the economists state that,

“This sea of money is impossible for the economy to ignore”

referring to the vast liquidity that the Federal Reserve is providing. They also note that rising – 1. Home Sales. 2. Retail Sales. 3. Auto Sales. 4. Oil and other Commodity Prices. 5. CPI. 6. PPI. and 7. the Baltic Freight Index numbers all support the notion that the money is working its magic.

Housing Analysts Predict the Bottom is Near
Realtor Magazine, Daily Real Estate News, April 28, 2009

“The bottom of the housing decline is near,”

predicted analysts and home builders attending the National Association of Home Builders’ semiannual Construction Forecast Conference last week.  Observers generally agree that the feds efforts to shore up the housing market should take effect by the end of 2009 or early 2010.

Signs Point to Improving Economy
Realtor Magazine, Daily Real Estate News, April 17, 2009
Federal Reserve Bank of Atlanta, president, Dennis Lockhart stated,

“The economy is still very weak, but there are some encouraging signs that support cautious optimism”.

Economists point to several factors to indicate that the economy in general and the housing market specifically may be rebounding including:
1.  March home sales remained flat compared to January and February sales.
2.  Labor Department Claims were down the week ending April 11, 2009 and therefore some segments of the economy may be stabilizing.
3.  New home construction remains low because of the inventory glut, but the situation does not seem to be worsening.

Top Economists Say Recovery Has Begun
Realtor Magazine, Daily Real Estate News, April 7, 2009
Mark Zandi, chief economist of Moody’s Economy.com says that economic recovery is about making people feel more confident. 

“Zandi evidenced increasing home sales and gains in the stock market are some promising signs that the worst is over and people will start spending again.”

He also notes that we are starting to see some pent up demand for goods.  However he warns that confidence is very fickle and can go from pessimism to a more balanced world view quickly. Robert Brusca of FAO Economics predicts strong growth in the labor market in the last half of the year and a quick recovery for the labor market. Joseph Carson, chief economist at AllianceBernstein, describes improving home sales, a rising stock market, and better than expected February and March retail sales as
good signs of a turnaround.

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Moody's Economy.com March 2009 Report & the Austin Real Estate Market

This is consistent with other recent economic news and it’s good news despite the tenor of Mr. Friedman’s comments.  2010 is right around the corner and the steady improvement that will prelude a 2010 recovery means we should start to see improved economic news sooner (4th quarter 2009 perhaps) rather than later. 

Edward Friedman,  Economy.com March 2009

Moody’s Economy.com has revised the near term outlook for Austin significantly downward, as the global recession has deepened beyond earlier expectations.  Employment will decline moderately over the coming year, as demand for IT hardware, software and services contracts. However, the overall decline will be proportionately less than for the U.S. as a whole. Although such factors as above average population growth, income per capita, and a highly educated workforce remain important long-term drivers for above average growth, AUS cannot count on recovery until 2010 at the earliest.

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2009 Austin Real Estate Outlook

While the national real estate market continues to struggle, the State of Texas and more specifically Central Texans can “thank their lucky stars” for their more promising near term outlook compared to other parts of the country. Consider that:

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2008 Austin Real Estate Market in Review

Residential in Review

Housing typically leads Real Estate Recovery with Commercial following. Here’s a look at the Fourth Quarter of 2008 as well as 2008 Totals to provide a glimpse at the Austin Residential Market.

Residential – New Homes Residential Strategies, Wednesday, December 31, 2008 Press Release

  • New Home Starts
    • 4Q08 – Builders started 1,459 new homes, 51% less than in 4Q07.
    • 2008 Annual – Starts fell below 10,000 to 8,987, compared to 13,624 in 2007, down 34%.
  • New Home Closings
    • 4Q 08 – Builders closed 2,289 new homes, compared to 3,259 closings in 4Q07, down 30%.
    • 2008 Annual – Closings totaled 10,933, compared to 14,809 in 2007, down 26%.
    • Finished Inventory totals a 2.9 month supply (2.5 months is considered optimum).

Residential – Resales Real Estate Center Texas A&M

  • Resale Closings
    • 4Q 08 – MLS reports closings of 3,922, compared to 5,486 in 4Q 07, down 29%.
    • 2008 Annual – 20,199 total homes were sold, compared to 25,151 sales in 2007, a 20% reduction.
    • 2008 ended with a 5.4 month inventory of houses, compared with 4.2 at the end of 2007.

Developed Residential Lots Residential Strategies, Wednesday, December 31, 2008 Press Release

  • 4Q 08 lot supply = 31,306 units, 218 units less. First lot supply decrease in (2) years. Starts are now outpacing lot deliveries.
  • The current lot supply stands at 42 months. 24 months is considered equilibrium.

2008 Commercial in Review

Retail led the Austin Commercial Market in 2008 with Office & Industrial #’s down from 2007. Here’s a look at 2008 in review.

Office Office vacancy rose to 19% overall in 2008 up from 14% in 2007 according to Oxford Commercial. 3.6 mil SF of new inventory contributed to this additional vacancy.

The office market is expected to remain flat through the first quarter of 2010. Vic Russo with Oxford Commercial expects that much of the vacant space will be taken by relocations to the area and not from local expansion.

Retail (Austin American Statesman 1/17/09, by Shonda Novak)
The Austin Retail market finished 2008 with 93% occupancy, the highest rate in the state.

New retailers for 2009 include Sprouts Farmers Market, Newflower Farmers Market, Nordstrom Rack outlet center and Buy Buy Baby a subsidiary of Bed Bath & Beyond.

Jeff Townsend with Endeavor Real Estate Group forecasts that it could be 1.5 – 2 years before we see any new retail construction.

Industrial
According to NAI Austin, year end vacancy was 18% which came close to but did not surpass the high tech bubble years of 2002-2004 when vacancy was @ 21%.

However, the number of SF absorbed was at its lowest annual total since 2005.

Absorption is expected to remain flat in 2009.

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Q1, 2009 Austin Industrial Market

AUSTIN INDUSTRIAL MARKET

industrialIndustrial Market Trends Austin, Grubb & Ellis Research, First Quarter 2009

The Austin Industrial market gave back 592,379 square feet of Industrial lease space in the first quarter of 2009, marking consecutive quarters in the red and the sixth consecutive quarter with an increase in vacancy.

Large spaces were vacated across a range of industries as businesses looked to consolidate or vacate their places of business.

The overall asking rate for industrial space fell $.07 or 1% in the first quarter.  $7.44, the current average per square foot is at the lowest level since first quarter of 2007.

Permanent link to this article: https://atxre.com/q1-2009-austin-industrial-market/

First Quarter 2009 Austin Office Market

AUSTIN OFFICE MARKET

Office Market Trends Austin
Grubb & Ellis Research
First Quarter 2009

office towerAfter three (3) consecutive quarters of positive net absorption, the Austin office leasing market went in the red for quarter 1 of 2009 giving back 158,281 square feet.  Rental rates declined and vacancy rates went up.  Overall vacancy rose to 20% for the first quarter, up from 19% in the fourth quarter of 2008.

Average annual rental rates per square foot went down from $27.65 in the fourth quarter of 2008 to $26.53 in the first quarter of 2009.   Sublease vacancy is up by 100,000 square feet from the 4th quarter of 2008.

Absorption is expected to remain flat throughout 2009 and when considering that 300,000 square feet has been added to the market over the past year and absorption this quarter compared to quarter 1 of 2008 is down 4%, this equates to a stable office market especially compared to the rest of the country.

Office Vacancy Rate Full Service $/SF Net Absorption SF Sublease Inventory SF New Office SF
Q4 2008 18.8% $27.65 345,781 904,663 0
Q1 2009 19.9% $26.53 (158,281) 1,006,419 486,370
Change 1.10% $(1.12) -46% 101,756 486,370


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