Commercial Real Estate Sectors to Watch
Commercial Real Estate Sectors on the Rise
Like weather forecasters, commercial real estate professionals constantly keep an eye on what’s ahead. Both weather forecasters and commercial real estate professionals are watching out for sunny and cloudy skies.
Of course, it’s more satisfying to pay attention to the sunny skies that are on the horizon. And, in Austin’s commercial real estate sector, three sectors fit neatly into that category right now: industrial, multifamily and self-storage. Here’s a look at what’s in the forecast for these three segments of commercial real estate in Central Texas.
Massive Industrial Growth
This year promises to be another banner year for industrial real estate in Austin and around the country. Driven by sustained growth in e-commerce, demand for industrial real estate continues to outpace supply, leading to likely increases in net absorption next year. Experts at NAIOP, a commercial real estate organization, predict net absorption of 334.6 million square feet in the industrial sector next year.
The Austin area is poised to be a major part of the positive trajectory of industrial real estate. High on the list of the region’s top industrial tenants is e-commerce giant Amazon, which continues to gobble up warehouse and distribution space in the suburbs.
Then, of course, there’s electric vehicle manufacturer Tesla. The company’s mega-factory just east of Austin-Bergstrom International Airport is on track to spawn millions more square feet of industrial leases and new industrial projects that’ll be occupied by Tesla vendors. For instance, Austin-based Rastegar Industrial plans to open a 530,000-square-foot industrial park near the Tesla factory.
Industrial tenants like Tesla vendors and Amazon likely will keep industrial deal volume at a high level in 2022 — perhaps even higher than in 2021. Industrial deal volume for 2021 totaled $971 million in the Austin area, up more than 200% from the same time in 2020, according to commercial real estate services provider NAI Partners.
As the population of the Austin area grows, so, too, will demand for multifamily properties. In 2021, the number of new multifamily projects in the region was about 500 — among the largest number of projects among all U.S. metro areas. There’s no sign the multifamily construction activity will let up in 2022.
As multifamily projects are being built, units are rapidly being leased. Austin ranked sixth among U.S. metro areas for multifamily absorption over a 12-month span (20,686 units). And, as a percentage of the current multifamily stock, Austin saw one of the biggest jumps in net absorption (8%).
The Austin area’s continuing population surge will continue to propel multifamily deals. The Austin market notched almost $1.8 billion in multifamily sales volume, NAI Partners says. In terms of multifamily deal volume and construction activity, there are two parts of the Austin area to closely watch in 2022: the north-south State Highway 130 corridor, which is getting a massive lift from the Tesla factory, and the east-west State Highway 79 corridor, where Samsung plans to build a $17 billion semiconductor factory. Outside those corridors, you can expect still-robust multifamily acquisition and construction activity in fast-growing suburbs like Buda, Cedar Park, Georgetown, Kyle, Leander and Round Rock.
Self-Storage is Soaring
The pandemic has driven self-storage occupancy rates to record highs. In fact, the industry outperformed all other commercial real estate sectors in 2021. But while self-storage should enjoy success in 2022, it’s not expected to be as much of a dominant sector as it has been in 2021.Still, self-storage deals should be percolating, yet again, in 2022. Austin’s fundamentals are just too strong for self-storage investors to ignore. Case in point: Investment giant KKR, with about $36 billion in assets under management just launched a self-storage acquisition platform whose targets include the Austin market.
Super-charged rent growth is helping drive interest in Austin’s self-storage market. Austin had joined six other U.S. markets in recording year-over-year rent growth of at least 15% for 10-by-10 climate-controlled storage units, according to Yardi Matrix. On top of that, the region’s self-storage occupancy rate stood at an almost unheard-of 94%, Cushman & Wakefield says.
Meanwhile, under-construction or planned self-storage space as a percentage of inventory in the Austin area was 5.9% in October, well below the national figure of 8.7%. Bottom line: If investors want to take advantage of Austin’s self-storage market in 2022, they’re likely to be better off focusing on acquisition than on construction. But development opportunities certainly won’t dry up.
These are just a few of the sectors we will be watching. Data centers will be another area to not miss. What areas are you most excited about? Our team of local experts would love to talk. Call a local lender now.