Austin: strong retail occupancy
market insight

Austin: strong retail occupancy

By Gabe Sanchez, senior vice president with Weitzman

Right now, the Austin retail market’s performance is about as good as it gets. Austin is the top major-metro market in Texas in terms of occupancy, which is at 96 percent. We’ve got steady leasing demand at a time of really low construction, which is a classic formula for high occupancy.

We’re also in a great place economically, with unemployment BELOW 3 percent. A decade ago, the economy also was in a positive cycle. Retail occupancy in 2007 was lower though, at 92 percent, but the market added 4.2 million square feet of new space that year. That is massively more than the 640,000 square feet we added in 2017.

Why is new construction so low, considering how healthy the market is?

A decade ago, we saw the first phase of The Domain and large anchors like Walmart, SuperTarget, JCPenney and Lowe’s. Target did open a new store in 2017, but it was only 22,000 square feet. That 2007 Target was 155,000 square feet larger! So not only are some anchors rolling out smaller footprints, but many have slowed the number of new stores as the focus on omnichannel retailing.

Construction in 2017 included new anchors, but most were in the “junior” anchor category like Dick’s Sporting Goods, Marshalls, DSW and Petco. Additionally, unlike most years, 2017 did not see any major grocery-anchored construction, although more is on the way for 2018 and 2019.

There is definitely a need for more space, and although we expect another slow year for new space in 2018, it should be followed by an increase in 2019. Anchors will need to add locations to keep up with residential and population growth, and that will justify peripheral small-shop space.