Abstract
Austin vacancy rose to 15.4% for warehouse/manufacturing and 20.8% for non-owner-occupied warehouse/distribution. Net absorption remained slightly positive at 50,000 SF. As demand and construction normalize toward historical levels, the market will need time to stabilize, benefiting tenants in the near term.
Austin
ECONOMY
The U.S. economy entered 2026 with meaningful tailwinds to growth including expanded business investment tax incentives, larger personal tax refunds, significant ongoing artificial intelligence (AI) related business investment, and hoped for reshoring related increases in domestic investment.
Future economic growth depends on multiple factors including sustained job growth, sustained AI investment, increased domestic investment beyond AI, both trade and fiscal policy, favorable financial market conditions, and the Strait of Hormuz disruption with its varied potential impacts including on consumer spending power.
National warehouse and storage employment continued its downward trend, decreasing by 49,000 positions compared with the same period last year.
Austin’s population has increased by 12.3% over the past five years, adding more than 285,000 residents. In the last year alone, the city grew by 1.6%.
Population growth peaked in 2022 and began to slow in 2023. In 2025, Austin recorded the smallest annual increase of the past five years.
AI related users continue to drive demand, with an increasing number of active requirements across the market, particularly in Hays County and Taylor, Texas. These tenants seek logistics space to support the storage, manufacturing, and distribution of components critical to data center operations, while leveraging Texas’s central location, reliable power, fast time-to-market, and skilled labor force.
In the first quarter of 2026, the market recorded a significant build-to-suit (BTS) project for Baer Manufacturing in the Georgetown submarket totaling more than 600,000 square feet (SF). A transaction of this scale has not occurred since the second quarter of 2024, when Four Hands executed a 567,000 SF lease in the Southeast submarket. During the quarter, Base Power also signed a BTS deal spanning two buildings totaling 320,000 SF in the Southeast submarket near the airport, with construction already underway for the energy provider’s facilities.
These large-scale projects are expected to support the Austin economy through job creation and new capital investment, further strengthening the region’s manufacturing and energy sectors.
VACANCY
In Q1 2026, Austin’s overall vacancy rate increased to 15.4%, rising 100 basis points (bps) quarter-over-quarter (QOQ) and 300 bps year-over-year (YOY). The current level is 770 bps above the long-term average (LTA).
Austin’s vacancy rate for non-owner-occupied warehouse and distribution buildings reached 20.8%, rising significantly from 7.0% in the first quarter of 2023, an increase of nearly 1,380 bps. The market has experienced consistent increases in vacancy for the last two years.
Given the slowdown in population growth and demand, combined with elevated supply delivered over the last five years, market conditions indicate that Austin’s vacancy rate is likely to remain elevated in the near term.
The Austin market has evolved in recent years with the introduction of institutional-grade buildings offering enhanced functionality compared to legacy properties. As leasing and absorption gradually return to historical norms, the market will need time to stabilize. Stabilization will depend on maintaining tenant demand to fill vacant space and keeping the construction pipeline limited so that new deliveries do not exceed demand.
RENT
Annual asking rents have continued to remain flat, increasing only 0.2% YOY, and QOQ, bringing the market asking rent per square foot (SF) to $12.55/SF.
With rents remaining flat, tenant improvement allowances have increased and are expected to stay elevated as landlords compete for occupancy given rising build-out and construction costs.
Landlords are increasingly open to short-term leases of 12–36 months due to higher vacancies. Incentives are also higher than they were 24 months ago, giving tenants a favorable environment to enter the market and benefit from increased concessions.
DEMAND
Net absorption was slightly positive, with nearly 50,000 SF of logistics and manufacturing space absorbed, down 480,000 SF QOQ and 1.3M SF YOY. Over the past 20 years, the market has recorded 11 quarters of negative absorption, led by Q1 2014 (653,102 SF) and Q1 2009 (603,772 SF), with 2009 accounting for three quarters and 2011 for two.
For non-owner-occupied warehouse and distribution buildings, the market saw just 75,500 SF of positive absorption, down nearly 95% from this time last year, a decline of almost 1.3M SF.
Leasing activity for logistics and manufacturing remained steady from the previous quarter at 3.2M SF, roughly 30% higher than the same period last year. A significant portion of this activity came from Baer’s 606,000 SF BTS project and ZT Systems’ 412,000 SF lease, which together accounted for 30% of total leasing this quarter.
Growing demand from military-related users, including those involved in the space program, and active suppliers for Samsung, with some deals already signed and others still seeking space. The market has also seen demand from users requiring HVAC, driven by more tenants needing climate-controlled space.
Demand will ultimately depend on broader economic conditions, as well as landlords’ ability to keep Austin an attractive market for tenants to enter and absorb space. Current market conditions, however, create a favorable environment for tenants to enter and occupy space.
CONSTRUCTION
The overall construction pipeline remained largely unchanged on both a quarterly and yearly basis, with 11.9M SF currently under construction (UC).
For non–owner-occupied warehouse and distribution buildings, the pipeline stands at 5.9M SF, down 9.3% from the prior year and essentially flat compared with the previous quarter.
Overall, the pipelines for both logistics and manufacturing buildings, as well as warehouse and distribution buildings, appear stable for now, though market conditions suggest they may decline in the near term.
Deliveries declined slightly from the previous quarter to 1.7M SF and remain 45% below the level recorded in Q1 2025.
Because of the increase in construction activity experienced in the last five years, Austin’s overall inventory has increased 65% since 2020. The market has enough supply, with construction starts down significantly, eventually it will constrain vacancy.
Land purchases for speculative product have declined significantly. Despite this, tenant demand remains active, with manufacturers showing interest in proposed sites.
Data in this report was provided by KBC Advisors, St. Louis Federal Reserve, and CoStar.
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