austin · citylab voted austin one of the top 3 metros ‘where good jobs are being created’. the...

Market Overview

www.hcpadvisors.com

2017

Austin

www.hcpadvisors.com

Introduction

Last year was a record year for the HCP team with our involvement in several significant assignments. Our work included hundreds of projects that all point to the fact that Austin remains a dynamic market and that transaction volume has been robust. We are hearing more frequently, from those who have been in Austin for a while, how the city continues to change. Our team moved into a larger creative office space formerly occupied by Habitat for Humanity. This project, called Canopy, was designed by renowned local architect Michael Hsu and represents some of the revitalization that is happening in Austin. The economic reality of the ‘New Austin’… is here. For commercial real estate, this means higher land values, higher rents, higher construction costs, new zoning codes, more density, more traffic, more construction, and a downtown skyline that continues to evolve. More people are coming, and although we are continuing to build apartments, affordable housing remains elusive for many. Uncertainty remains about what the future will bring us in 2017; however, all economic signs indicate that the upcoming year will be strong for commercial real estate. With the possibility of reduced banking regulations, strong real estate fundamentals, supply/demand factors remaining in balance, and a desirable place to live, Austin remains a great place to be.

We look forward to working with you in 2017! The HCP Team

12

16

42Billion inProject Value

CelebratingYears inBusiness

Canopy916 Springdale RoadBuilding 4, Suite 102Austin, Texas 78702

Projects in

States

REGIONALMARKETREPORT

Commercial Real Estate Advisors

2017

AUSTIN REGIONAL OVERVIEW

For 2016, the list of accolades for Austin continued. CNBC voted Austin as America’s Best Place to Start a Business. CityLab voted Austin one of the top 3 metros ‘Where Good Jobs are Being Created’. The Kauffman Foundation ranked Austin No. 1 on the Kauffman Index of Startup Activity. Austin is 6th on Glassdoor’s Best Cities for Jobs ranking. Austin was voted the Best Place for Small Business in the U.S. American Business Journals. Nesta ranked Austin as having the 4th largest share of creative economy jobs among U.S. metros. Avalanche Consulting ranked Austin No. 5 as one of the Most Talented U.S. Metros. Austin is America’s Fastest-Growing City according to Forbes magazine. Austin is No. 2 on U.S. News’ and World Report Best Places to Live ranking. Austin also tops Forbes “America’s Cities of the Future” in their ranking of cities most likely to prosper over the next decade.

EXPERIENCE INSIGHT RESULTS

REGIONAL MARKET REPORT

AUSTIN REGIONAL OVERVIEW

Economy Office Industrial Retail Multifamily

11 111TH

num

ber

num

ber

Largest City inthe US

Best Placesto Live in US

Best Cityfor Startups

Best Cityfor Job Growth

Based on Population

POPULATIONSince 2000, the Austin MSA has grown by 60%, compared to Texas by 29.3% and the U.S. by 13.3%.

Current metro area population is estimated at 2 mil-lion. The projected population is expected to increase to 2.3 million by 2020, resulting in a 34% increase over the 2010 to 2020 time period. This compares to a statewide projected increase of 21%. The Austin MSA population is considered young, with 68% of the current population be-tween 18 and 44 years old; 32% of which are between 25 and 44 years old.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

1,000,000

1,500,000

2,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

POPULATION SIZE CHANGE IN YEARLY GROWTH

2017

num

ber


EDUCATION

EMPLOYMENT PERFORMANCE

The unemployment rate within the MSA has remained below the state and national averages over the

past decade with current Austin MSA unemployment rate being 3.2%, compared to Texas and the U.S.

rates of 4.6% and 4.5%, respectively. The velocity of relocations and expansions have increased overall

employment according to the Bureau for Labor Statistics. Job growth continues to rise, with more than

18,800 jobs added annually within the area, resulting in a 1.9% annual job growth in 2016; higher when

compared to Texas and U.S. annual job growth rates of 1.8% and 1.4%.

The Austin MSA outperforms both the state and the U.S. based

on educational attainment with 42.6% having a bachelor’s de-

gree or higher. This compares to Texas with 28.4% having a

bachelor’s degree, and the U.S. with 30.6% college graduates.

According to the Texas Higher Education Board, there are 28

colleges and universities within the Austin MSA. The Univer-

sity continues to have the highest enrollment with more than

50,000 students.

HISTORICAL UNEMPLOYMENT RATECompiled by

Source

Source Compiled by

Texas Higher Education Coordinating Board

U.S. Census Bureau and The Texas Higher Education Board

Bureau of Labor Statistics and Texas Workforce Commission HCP

Educational Attainment


0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Austin MSA Texas U.S.

High School Graduates College Graduates

0.00%

3.00%

6.00%

9.00%

12.00%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Austin MSA Texas US

2017


MAJOR EMPLOYERS

EMPLOYER SECTOR EMPLOYEES

TRANSPORTATION &INFRASTRUCTURE

Both established and emerging business exist within the Austin MSA employ-

ing more than 1,000,000 employees with more than 570,000 employed within

Travis County. The trade, transportation, & utilities industry encompasses 18%

of the total employment, while the government industry and professional &

business services industry follow with approximately 17%. Austin has a diverse

mix of industries within the area and many large companies have their head-

quarters located within the fast growing MSA.

Located in the heart of central Texas, the vast transportation available within

the area ranges from major highways, artery roadways, railways, and an

international airport. Interstate 35, U.S. Highway 183, U.S. Highway 290, State

Highway 130, and State Highway 45 are the main highways used by thousands

of passengers traveling across the area. The traffic exhibited in the city has

been reported as the 4th worst in the U.S. by the INRIX Mobility Data Report.

Source Texas A&M University Real Estate Center, Austin Business Journal, andAustin Chamber of Commerce

Compiled by HCP


70,074

24,183

13,000

12,198

10,672

10,270

8,598

6,074

6,000

5,561

5,500

4,000

Government

Education

Technology

Retail

School District

Healthcare

Healthcare

Technology

Technology

Government

Technology

Technology

State of Texas

University of Texas

Dell Technologies

H-E-B

Austin ISD

Seton Healthcare

St. David’s Healthcare

Samsung

IBM

US IRS

Freescale Semi Conductor

Apple

2017


HISTORICAL METRICS - 2011 to 2016

INDICATORS

AUSTIN-ROUND ROCK-SAN MARCOS MSA

2011 2012 2013 2014 2015 2016

Population

% Change

Total Employment

Unemployment rate

Gross Retail Sales

Sales Per Capita

1,782,089

3.8%

912,660

6.9%

$25,531,752,357

$14,326

1,836,149

3.0%

952,005

5.8%

$27,768,525,114

$15,123

1,885,893

2.7%

988,473

5.2%

$31,076,301,601

$16,478

1,943,299

2.9%

1,016,673

4.4%

$33,417,027,138

$17,196

2,000,860

3.0%

1,019,062

3.5%

$34,253,589,712

$17,119

2,096,443

4.8%

1,003,400

3.2%

$35,281,197,403

$16,829

Source U.S Census Bureau, Bureau of Labor Statistics, and Texas Comptrollers Office Compiled by HCP

The table above highlights market indicators for Austin – Round Rock – San Marcos MSA, data is presented annually from 2011 through 2016.

Overview

The Austin MSA continues to outperform both the state and national employment growth rates and population growth rates. With job

growth and population increases projected for Austin in the near future, the metro area is positioned to perform well economically

across various real estate sectors. Given the strong talent base for employers and the record low unemployment rate, Austin’s expand-

ing tech industry continues to prosper. The Austin technology sector has rapidly expanded and is transforming the Austin area into a

major tech hub. The Austin MSA is projected to see high growth rates and outperform other metro areas across Texas, as well as the

U.S. throughout 2017.


2017

OFFICEMARKETREPORT


AUSTIN OFFICE MARKET HIGHLIGHTS

The Austin office market experienced record low vacancy rates and record high rental rates during 2016. The low unemployment rate and high employment growth rate exhibited throughout the MSA gave way to continued high office demand in 2016. Many office brokers say that Austin remains a Landlord’s market. Much of the new supply is preleased, therefore the supply of new office is limited. Given the amount of growth exhibited over the previous year and the expansions and relocations currently anticipated in the technology industry, office rents will likely continue to trend upward in 2017.


2017

2017OFFICE MARKET REPORT

AUSTIN MARKET OVERVIEW

MARKET OVERVIEW fromMajor Cities of TEXAS

Total Vacancy Rate

Net Absorption (SF)

Rental Rates (PSF)

Total New Construction (SF)

Austin San Antonio Houston Dallas

4Q2015

4Q2016

4Q2016

4Q2016

4Q2016

%change

8.20%

909,621

$30.66

879,922

8.30%

215,707

$32.28

328,227

1.22%

-76.29%

5.28%

-62.70%

9.10%

685,939

$20.37

116,206

15.10%

-240,794

$27.52

100,714

14.30%

705,773

$24.20

831,938

The Austin office occupancy

has increased over the

previous quarters. The

vacancy rate has remained

stable, keeping between

8.2% and 8.4% since 3Q

2015. Year to date net

absorption totaled a

positive 1,065,713 square

feet. Rental rates ended the

year at $32.28 per square

foot up $1.62 per square

foot from last year.

A total of 47 buildings were

delivered in 2016, totaling

1,326,271 square feet.

Approximately 3.1 million

square feet are still under

construction at the end of

2016.Property Class

Class A

Class B

Class C

$36.77

$27.66

$24.75

8.9%

9.4%

3.9%

686,483

639,788

0

263,050

-54,096

6,753

1,181,889

-19,056

-97,120

Rental Rate (PSF) Vacancy Rate YTD NewConstruction (SF)

Net Absorption(Square Feet)

YTD NetAbsorption (SF)4Q 2016

Source CoStar Property® Compiled by HCP


OFFICE MARKET REPORT

TOTAL OFFICE MARKET STATISTICS

TOTAL OFFICEMARKET STATISTICS

4Q2016

PeriodQuoted Rates

PSF

Existing Inventory

# of Bldgs Total RBA Direct SF Total SF Vac%

Vacancy

4Q 2016

3Q 2016

2Q 2016

1Q 2016

4Q 2015

3Q 2015

2q 2015

1q 2015

2014

2013

2012

2011

2010

2009

2008

2007

4,600

4,567

4,554

4,547

4,537

4,525

4,512

4,498

4,482

4,444

4,418

4,389

4,370

4,333

4,281

4,158

96,421,120

95,664,921

95,286,293

95,048,672

94,689,477

93,826,659

92,639,876

91,622,571

90,733,568

89,169,516

88,764,531

88,331,852

88,096,393

87,588,679

85,410,198

81,453,068

8,024,207

7,863,017

7,722,792

7,785,467

7,711,905

7,791,438

8,299,793

8,052,846

8,075,798

8,409,915

9,274,911

11,001,334

12,207,364

12,793,165

11,313,651

9,570,838

$32.28

$32.77

$31.39

$31.21

$30.65

$30.22

$29.80

$29.30

$28.13

$27.00

$25.47

$24.55

$24.87

$24.75

$25.15

$25.07

7,356,754

7,231,569

7,055,599

7,216,775

7,055,434

7,195,970

7,692,912

7,393,298

7,313,181

8,001,087

9,119,418

10,624,697

11,723,685

12,132,487

10,848,941

9,015,274

8.3%

8.2%

8.1%

8.2%

8.1%

8.3%

9.0%

8.8%

8.9%

9.4%

10.4%

12.5%

13.9%

14.6%

13.2%

11.8%



2017


TOTAL OFFICE MARKET STATISTICS - II

TOTAL OFFICEMARKET STATISTICS - II

4Q2016

PeriodNet Absorption

SF

2016 4Q

2016 3Q

2016 2Q

2016 1Q

2015 4Q

2015 3Q

2015 2Q

2015 1Q

2014

2013

2012

2011

2010

2009

2008

2007

Deliveries

# of Bldgs Total RBA

15

13

7

10

12

13

14

16

43

28

30

19

37

52

124

99

215,707

238,403

300,296

285,633

942,351

1,695,138

770,358

911,955

1,898,169

1,269,981

2,159,102

1,441,489

1,093,515

698,967

2,214,317

1,343,825

328,227

378,628

237,621

359,195

862,818

1,186,783

1,017,305

889,003

1,596,040

431,584

570,056

235,459

507,714

2,178,481

3,965,130

2,583,933

UC Inventory

# of Bldgs Total RBA

51

42

45

39

39

46

36

40

47

46

31

25

18

30

60

115

3,143,158

2,218,471

2,406,235

2,322,768

2,175,803

2,372,654

3,215,683

4,047,997

3,747,893

2,541,918

1,015,231

736,424

220,349

560,358

2,331,759

4,395,004



2017


VACANCY RATES VS. RENTAL RATES

VACANCY RATES

VS.

RENTAL RATES

The Austin office market ended 2016 with a vacancy rate of 8.3%. Over the previous year the vacancy rate increased just 1.22% when compared to 4Q 2015’s vacancy rate of 8.2%. Year to date absorption for the total office market is 1,065,713 square feet.

The rental rates for Austin area have seen a positive upward trend year to year. The rental rate reached an all time high of $32.68 per square foot during 3Q 2016. The current year end rental rate of $32.28 per square foot is 5.2% higher than the previous year’s rate of $30.66 per square foot.


0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

$20.00

$25.00

$30.00

$35.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 1Q

2015 2Q

2015 3Q

2015 4Q

2016 1Q

2016 2Q

2016 3Q

2016 4Q

VACA

NCY

RAT

E

REN

TAL

RATE

PSF

RENTAL RATE VACANCY RATE

2017

new constructionDuring the year of 2016, 47 buildings totaling 1,326,271 square feet were completed in the market area. This compares to 56 buildings totaling 4,020,358 square feet that were completed in the year of 2015. There was 3,143,158 SF of office space under construction at the end of 2016. The largest projects underway at the end of the year were 500 W 2nd Street, a 500,512 SF building with 67% of its space pre-leased, and University of Texas Systems, a 342,000 SF facility that is 100% pre-leased.


ANNUAL NEW CONSTRUCTION DELIVERIES


0

1

2

3

4

5

2016 2015 2014 2013 2012 2011

MIL

LIO

NS

SQU

ARE

FEET

DELIVERIES UNDER CONSTRUCTION

2017


TOTAL OFFICE MARKET STATISTICS 2016 4Q

MarketExisting Inventory Vacancy

Quoted RatesPSF

Net AbsorptionYTD

DeliveriesYTD

UnderConstruction SF

# of Bldgs Direct SF Total SFTotal RBA Vac %

Bastrop County

Caldwell County

CBD

Cedar Park

Central

East

Far Northeast

Far Northwest

Georgetown

Hays County

North

Northeast

Northwest

Round Rock

South

Southeast

Southwest

West Central

96

25

456

185

395

256

70

190

274

272

196

114

456

390

421

78

517

209

466,140

93,393

15,000,898

1,829,748

5,963,183

3,929,212

602,280

4,603,208

1,912,906

2,014,622

7,687,880

4,412,077

17,574,057

5,497,429

4,996,526

3,320,712

14,329,556

2,187,293

25,506

-

787,919

317,479

293,158

653,880

33,943

503,777

101,877

188,472

597,240

478,588

1,160,830

285,367

271,080

237,414

1,329,434

90,790

25,506

-

840,453

319,437

303,135

658,140

35,943

577,060

105,774

188,472

635,054

492,755

1,344,170

291,452

292,488

242,988

1,576,798

94,582

5.5%

-

5.6%

17.5%

5.1%

16.7%

6.0%

12.5%

5.5%

9.4%

8.3%

11.2%

7.6%

5.3%

5.9%

7.3%

11.0%

4.3%

$16.04

-

$46.53

$27.02

$26.92

$31.08

$23.59

$29.84

$22.83

$24.80

$32.14

$21.88

$30.78

$28.23

$28.08

$23.80

$33.61

$35.55

972

7,900

60,858

87,340

121,631

72,548

3,247

(29,134)

44,706

102,442

27,926

90,710

(24,038)

230,623

(132,091)

228,378

40,498

131,197

8,210

-

203,438

55,737

46,000

10,000

4,400

-

5,200

113,077

199,382

238,810

172,854

181,720

24,852

11,535

51,056

-

-

-

1,060,692

153,070

-

57,761

-

1,700

16,000

13,050

304,258

-

-

96,748

207,972

654,205

577,702

-

Totals 4,600 96,421,120 7,356,754 8,024,207 8.3% $32.28 1,065,713 1,326,271 3,143,158



2017


HISTORICAL COMPARISON

Period # of BldgsExisting Inventory

Total RBA Direct SF Net Absorption SF Vac% Quoted Rates

4Q 2016

3Q 2016

2Q 2016

1Q 2016

4Q 2015

3Q 2015

2Q 2015

1q 2015

2014

2013

2012

2011

2010

2009

4,600

4,567

4,554

4,547

4,537

4,525

4,512

4,498

4,482

4,444

4,418

4,389

4,370

4,333

96,421,120

95,664,921

95,286,293

95,048,672

94,689,477

93,826,659

92,639,876

91,622,571

90,733,568

89,169,516

88,764,531

88,331,852

88,096,393

87,588,679

7,356,754

7,231,569

7,055,599

7,216,775

7,055,434

7,195,970

7,692,912

7,393,298

7,313,181

8,001,087

9,119,418

10,624,697

11,723,685

12,132,487

215,707

238,403

300,296

285,633

942,351

1,695,138

770,358

911,955

1,898,169

1,269,981

2,159,102

1,441,489

1,093,515

698,967

8.3%

8.2%

8.1%

8.2%

8.1%

8.3%

9.0%

8.8%

8.9%

9.4%

10.4%

12.5%

13.9%

14.6%

$32.28

$32.77

$31.39

$31.21

$30.65

$30.22

$29.80

$29.30

$28.13

$27.00

$25.47

$24.55

$24.87

$24.75

OverviewOverall the Austin office market continues to experience a positive net absorption for the fourth consecutive year. Office vacancy rates remain stable and rental rates are at record high levels. Many large developments under construction were delivered during 2016, resulting in more than 3.8 million square feet of office space. Given the demand for office space in Austin from expansions and relocations, the majority of the new office space has already been leased or preleased. As demand continues, additional developments will continue to break ground for the year to come.


2017

INDUSTRIALMARKETREPORT


AUSTIN INDUSTRIAL MARKET HIGHLIGHTS

The Austin MSA industrial market again continued to see growth throughout 2016. Rental rates rose throughout the year as the overall market tightened. Austin is expected to experience continued new development in the industrial sector, with more than 2 milion square feet of space under construction. Austin’s industrial market is expected to continue to see growth in demand for Flex/R&D space. Continued expansions and relocations, coupled with the continued strength of the Austin MSA economy, will continue to support the industrial market throughout 2017.


2017

INDUSTRIAL MARKET REPORT



Total Vacancy Rate

Net Absorption (SF)

Rental Rates (PSF)

Total New Constructions (SF)


4Q2015

4Q2016

4Q2016

4Q2016

4Q2016

%change

4.80%

722,019

$8.83

432,513

4.80%

-209,472

$9.27

1,213,436

5.90%

423,342

$6.19

417,275

5.60%

1,851,815

$6.72

2,953,204

6.10%

4,090,300

$5.61

4,459,247

-

-129.01%

4.98%

180.55%-

The Austin industrial market

reported a vacancy rate of 4.8%

for 4Q 2016; on par with the 2015

4Q vacancy rate of 4.8%. The

vacancy rate over the previous

year saw an increase from

5.9% to 8.1% for flex projects.

Whereas, the warehouse sector

reported a vacancy rate of 3.8%

for 4Q 2016; decreasing from the

fourth quarter 2015 vacancy rate

of 4.5%.

The recorded year to date

absorption for the flex building

market is negative 131,380

square feet and positive

1,984,289 square feet for the

warehouse building market.

YTD, the overall net absorption

for the Austin Industrial market

is 1,852,909 square feet.Property Type

Flex

Warehouse

$12.91

$7.79

8.1%

3.8%

(131,380)

1,984,289

813,931

1,213,030

Vacancy Rate YTD Net

Absorption (SF)Under

Construction (SF)Rental Rate (PSF)

4Q 2016

By Property Type

AustinIndustrial Statistics

Office IndustrialEconomy Retail Multifamily

2017

The rental rates for the Austin industrial building mar-kets have seen an upward trend since 2011, and are currently at $9.27 per square foot. Over the previous year, the rental rate for the flex market increased from $11.69 in 4Q 2015 to the current average rental rate of $12.91 per square foot. The 4Q 2016 vacancy rate is 8.1%, jumping up from 5.9% in 4Q 2015.

FLEX MARKETVACANCY RATES VS. RENTAL RATES




0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

$6.00

$8.00

$10.00

$12.00

$14.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1Q

2015 2Q

2015 3Q

2015 4Q

2016 1Q

2016 2Q

2016 3Q

2016 4Q

VACA

NCY

RAT

E

REN

TAL

RATE

PSF

RENTAL RATES VACANCY RATES

2017

The current warehouse rental rate is $7.79 per square foot as of 4Q 2016. Over the previous year, the rental rate trended upward, increasing from $7.57 per square foot, or up 3.8% from 4Q 2015. The vacancy rate decreased from 4Q 2015 of 4.5% down to the 4Q 2016 rate of 3.8%

WAREHOUSE MARKETVACANCY RATES VS. RENTAL RATES




0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

$5.00

$6.00

$7.00

$8.00

$9.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1Q

2015 2Q

2015 3Q

2015 4Q

2016 1Q

2016 2Q

2016 3Q

2016 4Q

VACA

NCY

RAT

E

REN

TAL

RATE

PSF


2017

new constructionDuring the fourth quarter 2016, 12 buildings totaling 192,665 square feet were completed in the Austin market area. There was 2,026,961 square feet of Industrial space under construction at the end of the fourth quarter 2016. Completed projects for the year totaled 1,969,533 square feet for 2016. Some of the notable 2016 deliveries include: Amazon, an 855,000-square-foot facility that delivered in third quarter 2016 and is now 100% occupied, and Met Center Bldg. 3, a 160,000-square-foot building that delivered in first quarter 2016. The largest projects underway at the end of fourth quarter 2016 were Capitol Wright Distribution Center, a 500,000-square-foot building with 100% of its space pre-leased, and Brushy Creek Corporate Center – Phase 1 Bldg, a 124,780-square-foot facility.




0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2016 2015 2014 2013 2012 2011 2010

FLEX NEW CONSTRUCTION FLEX UNDER CONSTRUCTION

WAREHOUSE NEW CONSTRUCTION WAREHOUSE UNDER CONSTRUCTION

2017


HISTORICAL METRICS – 2006 TO CURRENT

Period Quoted RatesPSF

4q 2016

3q 2016

2q 2016

1q 2016

4q 2015

3q 2015

2q 2015

1q 2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

Existing Inventory Vacancy

# of Bldgs Total SFTotal RBA Vac%

97,948,697

97,700,297

96,491,661

96,397,542

96,011,310

95,902,047

95,469,534

95,597,112

95,278,380

94,514,665

94,022,234

93,685,948

93,057,675

92,734,207

91,395,417

88,727,353

84,037,455

4,003

3,965

3,950

3,946

3,938

3,936

3,922

3,916

3,913

3,887

3,872

3,855

3,842

3,817

3,781

3,716

3,634

4,708,604

4,462,019

5,065,996

5,080,704

4,710,890

5,324,746

5,677,319

6,982,025

7,081,878

6,546,692

8,389,010

9,893,655

10,939,843

11,595,752

9,500,939

8,384,095

8,148,117

$9.27

$9.31

$9.02

$8.87

$8.83

$9.01

$8.69

$8.46

$8.25

$7.38

$6.67

$6.77

$6.88

$6.96

$7.65

$7.51

$6.73

4.8%

4.6%

5.3%

5.3%

4.9%

5.6%

5.9%

7.3%

7.4%

6.9%

8.9%

10.6%

11.8%

12.5%

10.4%

9.4%

9.7%

overviewThe overall industrial market has seen steady vacancy rates and an increase in average rental rates over the previous year. There are many developments under construction with the majority of new rentable area within the warehouse building market. Total Industrial inventory in the Austin market area amounted to 97,948,697 square feet in 4,003 buildings as of the end of the fourth quarter 2016. The flex market has seen an increase in rental rates. The total Austin industrial market is expected to show optimal conditions for the year to come. Absorption remained positive overall, while demand for flex properties continued to stay strong as tenants in Class A & B office space consider moves to less expensive flex space. This trend is expected to continue and contribute to the evolving industrial real estate market throughout the Austin MSA.

The table illustrates the existing industrial inventory for Austin going back to 2006 through the current quarter. The data is presented on a quarterly basis from 2015 to the current quarter.



2017

RETAILMARKETREPORT


AUSTIN RETAIL MARKET HIGHLIGHTS

Demand continues to outstrip supply and it forcing many tenants to expand in existing centers. Given the rate of job growth, outstanding growth in population, and the increases in residential development, the Austin retail market again is well positioned for continued growth in 2017. New developments including new Phases at The Domain in north Austin continue to drive national tenants to the Austin area along with expansion of existing businesses. The Austin retail market continues to have some of the lowest vacancy rates in the country and retail sales continue to increase which are all factors which should contribute to a favorable retail market in 2017. Many new projects have been preleased.


2017

RETAIL MARKET REPORT



Total Vacancy Rate

Net Absorption (SF)

Rental Rates (PSF)

Total New Constructions (SF)


4Q2015

4Q2016

4Q2016

4Q2016

4Q2016

%change

3.7%

725,278

$19.14

479,101

3.5%

406,013

$21.18

356,916

-5.4%

-44%

10.66%

-26%

4.0%

49,254

$14.70

272,666

4.9%

1,172,614

$16.19

1,474,467

4.8%

974,281

$15.77

625,738

The retail vacancy rate has experienced a downward trend since 2009, with the current rate for 4Q 2016 being 3.5%, the lowest rate within the past 10 years. The retail vacancy rate dropped by 5.4% between 4Q 2015 and 4Q 2016, decreasing from 3.7% last year. The net absorption for the total market in 4Q 2016 was 406,013 square feet, while the 2016 YTD absorption amounts to 921,869 square feet.

RetailOfficeEconomy MultifamilyIndustrial

2017


RENTAL RATES VS. VACANCY RATES

RENTAL RATES

VS.

VACANCY RATES

The rental rates for the Austin area saw a downward trend from 2008 to 2012 and have trended upward since 2013. The current rental rate is $21.18 per square foot for 2016 4Q, an all-time high, up $2.04 per square foot from the $19.14 per square foot reported in 4Q 2015. Over the past year, the total Austin retail market saw a 10.66% increase in rental rates when compared to the 4Q 2015 rate.


3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

$16.00

$17.00

$18.00

$19.00

$20.00

$21.00

$22.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1Q

2015 2Q

2015 3Q

2015 4Q

2016 1Q

2016 2Q

2016 3Q

2016 4Q

VACA

NCY

RAT

E

REN

TAL

RATE

PSF


2017



NEW CONSTRUCTIONS During 4Q 2016, sixteen buildings totaling 356,916 square feet were completed

in the Austin retail market. With new construction underway in multiple

submarkets, more than 1,241,958 square feet of retail space was under

construction as of 4Q 2016. Over the past four quarters, a total of 1,093,110

square feet of retail space has been built in Austin. Some of the notable 2016

deliveries include: H-E-B, a 126,000-square-foot facility that delivered in 4Q

2016 and is now 100% occupied, and 11501 Rock Rose Ave, a 63,290-square-

foot building that delivered in 1Q 2016 and is now 100% occupied.

Austin Retail StatisticsBy Property Type

Property Type Rental Rate (PSF)4Q 2016

Vacancy Rate YTD NetAbsorption (SF)


2.3%

1.2%

4.0%

5.7%

0.0%

3.5%

191,251

702

16,210

197,850

0

406,013

General Retail

Mall Market

Power Center

Shopping Center

Specialty Center

Total Market

$22.17

$24.71

$25.08

$20.19

$32.48

$21.18

0

1,000,000

2,000,000

2016 2015 2014 2013 2012 2011

NEW CONSTRUCTION UNDER CONSTRUCTION

2017


HISTORICAL METRICS – 2007 TO CURRENT

Period Quoted RatesPSF

4Q 2016

3q 2016

2q 2016

1q 2016

4q 2015

3q 2015

2q 2015

1q 2015

2014

2013

2012

2011

2010

2009

2008

2007

Existing Inventory Vacancy

# of Bldgs Total SFTotal RBA Vac%

106,594,537

105,800,628

105,677,167

105,699,718

105,355,625

105,028,644

104,828,690

104,592,254

104,328,610

103,220,053

102,359,441

101,285,268

100,756,406

100,054,840

98,171,851

94,522,063

9,220

9,204

9,178

9,164

9,146

9,128

9,110

9,099

9,084

9,017

8,943

8,872

8,816

8,747

8,625

8,464

3,756,628

3,790,883

3,911,159

4,255,705

3,861,736

4,143,399

4,554,176

4,995,552

5,065,212

5,210,745

5,678,338

6,100,773

6,273,722

6,640,612

6,126,860

6,416,113

$21.18

$20.67

$19.72

$19.18

$19.14

$18.79

$18.49

$18.26

$17.81

$17.50

$17.83

$17.56

$17.84

$18.21

$19.80

$19.51

3.5%

3.6%

3.7%

4.0%

3.7%

3.9%

4.3%

4.8%

4.9%

5.0%

5.5%

6.0%

6.2%

6.6%

6.2%

6.8%

overviewThe Austin retail market experienced positive change in market conditions in the fourth quarter 2016. The vacancy rate remained low at 3.5%. Net absorption was positive 406,013 square feet. Quoted rental rates jumped from the third quarter 2016 record levels, to a new high of $21.18 per square foot. A total of sixteen retail buildings with 356,916 square feet of retail space were delivered to the market in the quarter, with 1,241,958 square feet still under constructions at the end of the quarter. Large retail developments are under construction in both downtown Austin and the surrounding suburban areas with projected delivery in the near future. As the retail market continues to see growth, many areas are trending toward redeveloped spaces in older properties, even utilizing mixed use properties with retail characteristics. High occupancy rates and increased rental rates show positive signs for expansion within the next year.

The following table illustrates the existing retail inventory for Austin going back to 2007 through the current quarter. The data is presented on a quarterly basis from 2015 to the current quarter.



2017

MULTIFAMILY

MARKETREPORT


AUSTIN MULTIFAMILY MARKET HIGHLIGHTS

The Austin Multifamily market stayed strong throughout 2016, with the market continuing to show signs of growth and expansion. The preferable economic conditions exhibited by the Austin MSA continue to spur growth within the multifamily market. The growth in population and the above average job growth rate continue to drive demand for units throughout the MSA. With job growth on the rise and hiring anticipated to continue in 2017, expect continued strong demand for apartments across the Austin MSA.


2017

MULTIFAMILY MARKET REPORT




Occupancy Rate

Units Added

Units Absorbed

Average Effective Rent per Unit

Average Size (SF)

Effective Rent PSF


4Q2015

4Q2016

4Q2016

4Q2016

4Q2016

%change

92.1%

4,506

7,204

854

$1,169

$1.36

91.4%

4,387

6,086

857

$1,209

$1.41

-0.8%

-2.6%

-15.5%

0.4%

3.4%

3.7%

89.50%

3,497

5,665

842

$922

$1.06

88.00%

13,832

4,081

880

$1,004

$1.14

92.20%

11,360

14,925

964

$1,053

$1.22

The Austin Multifamily market ended 2016 with an occupancy rate of 91.4%. Year to date net absorption totaled 6,086 units. Rental rates ended the year at $1.41 per square foot. A total of 4,387 units were delivered to the market in the fourth quarter in 2016. More than 7,600 units were under construction at end of year 2016. The average rent is expected to continue to rise faster than the national average.

2017


RENTAL RATES VS. OCCUPANCY RATES

The multifamily occupancy rate has remained relatively consistent since 4Q 2015, with the lowest rate being 4Q 2016 at 91.4%.

The multifamily occupancy rate reached 93.9% for stabilized properties, but stands at 91.4% in general. The 2016 absorption for the total Austin apartment market is 6,086 units.

The rental rates for the Austin area have steadily risen over the previous decade.

The current rental rate is $1.39 per square foot as of the end of 2016, a 3.7% increase compared to the 4Q 2015 rental rate of $1.36 per square foot.

RENTAL RATES VS. OCCUPANCY RATES


80.00%

82.00%

84.00%

86.00%

88.00%

90.00%

92.00%

94.00%

96.00%

98.00%

100.00%

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1Q

2015 2Q

2015 3Q

2015 4Q

2016 1Q

2016 2Q

2016 3Q

2016 4Q

OCC

UPA

NCY

RAT

E

REN

TAL

RATE

RENTAL RATES PSF OCCUPANCY RATES

2017


AUSTIN MULTIFAMILY STATISTICS

TOTAL MULTIFAMILY MARKET STATISTICS

Property Type

Eff

1 Bdrm

2 Bdrm

3 Bdrm

>4 Bdrm

Average Market Rent

PSF

Average Effective

Rent% of the Market 4Q 2016

3.4%

49.9%

37.3%

7.0%

2.4%

458

698

1,024

1,271

1,498

$939

$1,066

$1,317

$1,513

$2,256

YEAR end2016

BY PROPERTY TYPE

Source Apartment Market Data Research Compiled by HCP


2017

new constructionCompleted projects for the year ending 2016 totaled 12,525 units. With new construction underway in multiple submarkets, projects under construction are estimated to be 16,500 units, with delivery dates scheduled through mid 2018. Several submarkets will receive significant stock during this time, with more than 1,500 units slated for completion in Cedar Park, East Austin, Round Rock, Georgetown and Pflugerville/Wells Branch.


ANNUAL NEW CONSTRUCTION


0

5,000

10,000

15,000

20,000

25,000

2016 2015 2014 2013 2012

NEW CONSTRUCTION UNDER CONSTRUCTION

2017


AUSTIN MULTIFAMILY STATISTICS

The below tables illustrate the multifamily inventory for Austin properties built before 1970 and after 2010. The data is presented on a 10 year basis.

AUSTINMULTIFAMILY MARKET STATISTICS

Period Units Occupancy Rental Rate Avg Size SF

2010’s

2000’s

1990’s

1980’s

1970’s

<1970

17,911

48,407

23,822

40,840

17,398

5,002

82.8%

95.0%

95.5%

95.8%

95.9%

96.6%

$1.54

$1.21

$1.23

$1.17

$1.23

$1.26

913

965

917

730

761

776


SAN MARCOSMULTIFAMILY MARKET STATISTICS

Period Units Occupancy Rental Rate Avg Size SF

2010’s

2000’s

1990’s

1980’s

1970’s

<1970

724

1,801

1,100

2,665

526

509

95.2%

95.4%

94.8%

95.3%

85.7%

94.5%

$1.07

$1.01

$1.10

$1.01

$0.97

$1.09

959

960

910

771

782

746



2017


TOTAL MULTIFAMILY MARKET STATISTICS

Market Units Occupancy Class A Rent PSF

Class BRent PSF

Class CRent PSF

Average Rent PSF

Central

CBD

Cedar Park/Leander (CP/L)

East Central (E)

Hays

North (N)

North Central (NE)

Northeast (NW)

Northwest (NW)

Round Rock (RR)

South (S)

Southeast Central (SEC)

San Marcos (SM)

Southwest (SW)

Travis County

Williamson County (WMS)

5,360

4,243

7,693

3,341

2,298

20,700

6,911

11,693

2,725

10,267

12,969

11,627

5,629

7,088

133,340

3,366

94.8%

83.2%

94.6%

88.9%

95.9%

94.9%

91.1%

93.4%

94.8%

96.0%

94.0%

93.2%

97.6%

92.2%

93.2%

95.1%

$1.82

$2.55

$1.39

$1.89

$1.30

$1.38

$1.79

$1.28

$1.38

$1.27

$1.40

$1.90

$1.32

$1.38

$1.70

$1.30

$1.89

$1.98

$1.17

-

-

$1.29

$1.55

$1.24

$1.29

$1.21

$1.31

$1.41

$1.27

$1.37

$1.35

$1.23

$1.62

$1.68

$1.07

$1.71

-

$1.26

$1.34

$1.21

$1.26

$1.21

$1.39

$1.35

$1.15

$1.30

$1.35

$1.30

$1.76

$2.49

$1.30

$1.86

$1.30

$1.30

$1.62

$1.25

$1.30

$1.23

$1.36

$1.45

$1.22

$1.37

$1.46

$1.28

Total Austin MSA 173,104 93.7% $1.59 $1.32 $1.32 $1.41

Source Transwestern Compiled by HCP


2017


AUSTIN MULTIFAMILY MARKET STATISTICS

PeriodUnits

Absorbed(Annual)

Occupancy Units Added Avg Rent PSF

4Q 2016

3Q 2016

2Q 2016

1Q 2016

4Q 2015

3Q 2015

2Q 2015

1Q 2015

4Q 2014

3Q 2014

2Q 2014

1Q 2014

2013

2012

2011

2010

2009

6,086

7,306

7,676

7,875

7,204

2,547

1,424

3,947

2,639

2,963

3,480

2,140

1,364

3,175

2,170

1,445

4,965

91.4%

91.9%

91.8%

91.9%

92.1%

95.0%

94.0%

93.8%

94.0%

95.0%

94.0%

94.0%

95.0%

95.0%

95.0%

92.0%

88.0%

3,577

1,648

4,502

2,798

4,506

2,022

2,618

2,175

2,507

2,066

2,134

2,081

1,794

1,338

1,645

1,101

961

$1.41

$1.36

$1.44

$1.36

$1.36

$1.34

$1.31

$1.28

$1.25

$1.26

$1.24

$1.20

$1.16

$1.09

$1.03

$0.96

$0.93


overview

The Austin apartment market has continued to prosper; there are many large developments under construction with projected delivery over the next year. Rental rates have increased substantially in the recent past due to high demand exceeding the pace of the new supply being added to the market. Given the demand for multifamily space in Austin from the significant job growth and expansions, the addition of new supply will likely not negatively affect overall vacancy levels. Rents continue to rise, after they rose 3.7% from 2015. Bastrop County is the only submarket in the Austin MSA reporting rents averaging lower than $1.00 per square foot. On the other hand, the Downtown, University, and South Central submarkets are reporting rents averaging above $2.00 per square foot, including $2.55 per square foot Downtown. While all of the MSA is active with new construction, the South Austin submarkets are currently reporting seventeen multifamily projects underway, with expected delivery dates in 2017.


2017

HCPAdvisors

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