Austin Gets Buy Sign for Retail Assets

Muoio says the robust economy is a key driver of the strength of the retail market.

AUSTIN, TX—According to the US retail market outlook released by Ten-X , the long-term forecast for the top five buy and sell markets for retail real estate assets include all but one coastal city. The winner in the buy category with an inland location is no surprise: Austin, TX. Austin’s economy is hot, as a population explosion fuels a high 3% employment growth rate, says Ten-X. Demand for retail space is strong, and although vacancies fell only 10 bps from one year ago–to 6.5%–Ten-X predicts vacancies will drop below 6% by 2019. Healthy rent gains also signal high net operating income growth, which is projected to average in the low 5% range through 2018, after which it is expected to decelerate to around 2%. Ten-X chief economist Peter Muoio tells GlobeSt.com: “With Austin’s population growing at three times the national rate and employment at an all-time high, the city’s robust economy is a key driver of the strength of the retail market. The city’s burgeoning technology sector is driving its overall economic growth, and is a major factor propelling Austin ahead of other Texas markets with strong fundamentals. Our projections see retail rents rising at a rate of 4.3% annually over the next three years and vacancies declining over the same period, making the city extremely enticing for retail investors.” The other cities in the ranking include Miami, Fort Lauderdale, FL, Northern Virginia and Los Angeles as those markets in which investors should consider buying retail assets. Ten-X research suggests that the top five buy markets will attract investors as a result of favorable economic conditions and growing projected rents. The research also indicates that Central New Jersey, Detroit, Baltimore, Cleveland, and Memphis are markets in which investors might consider selling these properties. Sell markets are likely to weaken due to relatively low demand for retail space and stagnating population growth. Overall, however, the report indicates that the market is slowly improving nationwide, as absorption continues to outpace new supply of retail space. “With retail vacancies dropping to 10%, a 20 bps year-over-year decline, the sector is slowly but surely inching toward pre-recession levels,” says Muoio. “Though select markets, particularly in the Northeast and Midwest have lagged in recent months, the overall forecast for retail real estate remains strong in the coming years. By 2018, we expect vacancies to drop to the 8% range, despite increased competition from e-retailers.” The retail market outlook also projects an increase in effective retail rents–around 3% per year–through 2018 as vacancies continue to drop. The research does, however, indicate that this growth rate may slow to about 1% by 2019. Austin development is abundant. What are the active markets? Who are the key players? Join us at RealShare Austin for market intelligence and the best networking in the biz.