IRR 2016 forecast: Austin retail to stay hot

AUSTIN - Austin provides a favorable climate for retail with a rapidly growing population, low unemployment, and expanding business within several key industry sectors. 

The retail market is expanding as vacancy rates fall, rental rates increase, and existing space is absorbed.

Vacancy rates for regional mall, community retail, and neighborhood retail have decreased over the past year and will likely continue in this direction into 2016.

Rental rates have climbed consistently over the past five years with an overall rate increase of more than 4 percent expected for 2016.

Both cap and discount rates declined throughout 2015 but will likely remain relatively flat in the first part of 2016.

Overall absorption has been positive for the previous five years and should stay positive through the coming year, even increasing to an estimated 350,000 sf of total absorption for 2016.

Construction within the retail sector has slowed recently with more than 1 million sf added in 2015 but just slightly more than 300,000 sf expected for 2016.

The Domain, a mixed-use development with multifamily residential, office and retail space in north Austin, is adding 171,000 sf of additional retail space this year. 

South Austin has several mixed developments with retail space under construction, including Lakeview Town Center and South Lamar Plaza. 

Several small neighborhood retail centers are under construction in the suburban communities of Round Rock, Leander, and Cedar Park.

Given continued occupancy levels, increasing rental rates, high absorption, and limited new supply, the Austin retail market should continue to expand in the coming year.