At AQUILA, our industrial experts understand how difficult it can be to find the right industrial space in Austin, Texas. After meeting with hundreds of clients, we’ve found that one of the first questions clients ask is, “what does industrial space cost in Austin?”

To answer this question, we’ve compiled a detailed look into:

  • What makes up industrial rental rates
  • What average rental rates are today

 

How Industrial Rental Rates are Calculated

 

 

Before we dive into specific costs around the Austin area, it is important to understand how to calculate your total annual rent expense. Calculating your industrial lease requires four numbers:

  1. The square footage of the lease
  2. The base (or NNN) rental rate
  3. The estimated operating expense
  4. Electrical and janitorial expenses (E&J)

It’s important to note, that often industrial rates are quoted on a monthly, not annual, basis in Austin. This varies market to market, and as the Austin market continues to grow, some landlords are beginning to quote annual rates – be sure to check how your property is quoted.

To find the total annual cost to lease your industrial space, multiply the monthly full-service rental rate (the sum of the base rent, operating expenses, and electrical and janitorial) by the square footage of the space, then multiply by 12 months.  

Industrial Rental Rate Equation

For the sake of this article, we will be quoting monthly NNN rates, because operating expenses and E&J rates can vary across properties and tenant types.

Why Operating Expenses and Electrical & Janitorial Rates Vary in Industrial

Operating Expenses

Your operating expense is comprised of three primary components:

  • Property Taxes
  • Insurance Rates
  • Common Area Maintenance

Each year these rates are estimated by the property managers and are included in your full service rental rate. However, depending on quality, age, location of the building, these rates can fluctuate widely from property to property.

A good tenant representation broker should typically be able to negotiate a cap on the percent that a landlord can increase the common area maintenance fees year over year.

In a mature building, typically the tax and insurance will stay consistent year over year. In a new building though, it can be harder to estimate exactly what this annual cost will be, and you may find that the landlord under (or over) estimated the required op/ex. Additionally, at around the 2 – 3 year mark, properties will typically experience a hike in property taxes as they are reassessed.

While op/ex can vary, typically tenants can anticipate paying somewhere in the range of $0.15 – 0.47/sf each month, with recently delivered distribution buildings falling on the low end and mature flex buildings falling on the higher end.

 

What's the Deal with All the OpEx?

Electrical & Janitorial

While the op/ex rates are set by outside parties, you, the tenant, actually have complete control over the E&J expenses.

Industrial suites are actually individually metered, as there can be a wide range of use types across tenants, with equally wide range of costs. For example, a manufacturer with 100% HVAC, who is running machines 24 hours a day is going to have a much higher electrical bill than that of a distribution center, that has no HVAC, and only runs the lights eight hours a day.

For this reason, industrial landlords keep this separate from the rental rates, and industrial tenants are required to contract and cover their own E&J. This is different than office landlords, who anticipate a standard forty hour work week, with the typical lights, HVAC and computer/printer needs for all building tenants, are able to incorporate this into the op/ex.

Additionally, as the E&J is completely tied to your use type, we cannot include this in our averages below.

To provide a general idea, however, a typical flex user can anticipate paying somewhere in the range of $3/sf annually in E&J.

 

Cost to Lease Space in Austin’s Three Major Industrial Submarkets

Now that you understand what factors affect rental rates and how that rate is calculated, let’s delve deeper into exactly what rental rates currently are in Austin. We’ll focus on the city’s three major submarkets:

  • North
  • Northeast
  • Southeast

The rental rates below are referencing direct deals with landlords only. Subleases and other special situation would likely have different rates. These reflect market averages and may vary from property to property.

Map of Austin Industrial Submarkets

North

The North submarket is defined as the area north of US-183, between Mopac Expressway and IH-35, north to SH-45. The area has traditionally been home to design warehouses and showroom spaces, featuring all sorts of home and office finish suppliers, including tile and stone distributors, office furniture showrooms, flooring warehouses and more.

However, in recent years, more businesses have been attracted to the area for its proximity to the ever-growing restaurant and retail hub in and around at The Domain. These are typically tech users looking for flex office space. This recent popularity has driven rental rates, and over the past several quarters, the North submarket has been asking the highest rates in the city.

Average Current North Austin Industrial Rental Rate: $0.83

As you can see from the chart, it currently costs approximately $0.83 per sf monthly to lease office space in North Austin. Using a 50,000-sf tenant as an example that amounts to $498,000 per year, or $41,500 per month plus op/ex and E&J.

A few of the tenants currently leasing space in the North submarket are:

Northeast Rental Rates

The Northeast submarket spans east of IH-35, north of US-290, out past the 130 Toll, up to the southern edge of Pflugerville, with the primary hub centering around US-290 and IH-35. This location is ideal for distribution companies, as it allows for easy access to major interstates and highways, with direct routes to surrounding cities including Houston, San Antonio and Dallas.

In addition, this location appeals to the numerous companies who service Dell, Applied Materials and Samsung, all of whom have major campuses located within the submarket.

Average Current Northeast Austin Industrial Rental Rate: $0.78

Currently, the average full service asking rate in the Northeast submarket is $0.78 per sf per month. With these rental rates, our 50,000-sf tenant will be paying approximately $468,000 per year, or $39,000 per month plus op/ex and E&J.

Some tenants currently leasing space in the Northeast are:

  • UPS main distribution center
  • The State of Texas
  • HID Global

Southeast Rental Rates

The Southeast industrial submarket encompasses the area south of the river, east of IH-35 and south to the 45 Toll, essentially surrounding the Austin Bergstrom International Airport.

The Southeast submarket is the closest of the major industrial markets to Downtown Austin. In addition, with the completion of the HWY-71 flyover, the Southeast market is by far the most accessible to executive housing in the affluent west Austin suburbs, including West Lake Hills, Tarrytown and Rollingwood. This access has allowed the Southeast submarket to flourish, with a number of new developments nearing completion and underway.

In the Southeast, you can find a healthy mix of tenant types – from national brands to local companies, including both warehouse and distribution centers, which also enjoy easy access to San Antonio, Central Texas and Houston via the surrounding major highways.  

Average Current Southeast Austin Industrial Rental Rate: $0.82

Currently, the average full service asking rate in the Southeast area is $0.82 per sf per month. With these rental rates, our 50,000-sf tenant will be paying approximately $492,000 per year, or $41,000 per month plus op/ex & E&J.

Some tenants currently leasing space in the Southeast are:

  • BMC
  • Daikin
  • Travis Association for the Blind

2Q 2018 Average Industrial Rental Rates in Austin, Texas
Submarket NNN Rental Rate
North $0.83
Northeast $0.78
Southeast $0.82

 

To learn more about the rental rates and trends in Austin’s industrial market, including all thirteen submarkets, be sure to download your free copy of AQUILA’s Austin Industrial Overview

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Leigh Ellis | Industrial Commercial Real Estate in Austin, Texas | AQUILA Commercial

Leigh Ellis

Leigh is AQUILA’s resident industrial specialist. There’s not an industrial or flex space in the market he doesn’t know. Leigh’s experience is diverse and deep, spanning leasing, tenant representation, acquisitions and dispositions.

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