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Absorption in the retail sector in Austin continued its downward slide in Q2 2020, registering (627,511) sq. ft. of net demand. The organizers of the beloved Austin City Limits music festival announced that the iconic festival would be cancelled in 2020 due to COVID-19. The festival generates more than $250 million for the local economy annually, ranking behind only South by Southwest for annual events. The statewide closures of non-essential businesses have taken a toll on the local economy, driving numerous local establishments and eateries to shutter permanently. With uncertainty surrounding the future, the list of local favorites closing is likely to increase. Despite the sliding market fundamentals, development activity remained strong in Q2 2020, with 48 projects currently underway, totaling approximately 1.3 million sq. ft. Most of these projects are slated to deliver during 2020; with preleasing low, these projects will negatively affect retail fundamentals further. Market-wide occupancy decreased to 95.2% in Q2 2020 as the average asking rate decreased to $20.50 per sq. ft.

After experiencing 37 consecutive quarters of positive net absorption, Austin's office market registered negative 1.27 million sq. ft. of net demand. There was a sharp uptick in sublease availability throughout the metro, with significant spikes in the CBD and Northwest submarket. Overall asking rates throughout the metro stabilized after dropping to $36.64 per sq. ft. in Q1 2020, driven largely by the increase in overall available space and revised OPEX costs. Vacancy throughout the metro increased 190 basis points, from 10.9% in Q1 2020 to 12.8% in Q2 2020. The effects of the current economic conditions have spread to the development pipeline, as new construction activity appears to have halted. There are currently 33 projects under active construction, totaling approximately 6.5 million sq. ft. Of these, only two were started in Q2 2020.

Strong tenant demand for distribution space drove the Austin industrial market to its 24th consecutive quarter of positive net demand. The development pipeline remained robust in Q2 2020, with 17 projects totaling approximately 1.2 million sq. ft. under active construction. Five buildings delivered this quarter, all in the Round Rock submarket, totaling 614,814 sq. ft., with 76% preleased. Quarter-over-quarter, average asking rates rose $0.08 from Q1 2020 per sq. ft. to $9.64 per sq. ft. in Q2 2020. Flex/R&D rates increased $0.23 quarter-over-quarter to $11.95 per sq. ft., while warehouse rates declined from $7.97 last quarter to $7.66 per sq. ft. in Q2 2020. Vacancy decreased 70 basis points to 10.1% in Q2 2020. While overall net demand remained positive, the decrease in vacancy was driven largely due to the withdrawal from the market of multiple spaces throughout the metro.