Q1 2025 Austin Retail Market Report

Highlights

• Austin’s vacancy rate stands at a historic low of 3.0%, despite experiencing the largest wave of move-outs since the beginning of the pandemic.
• A slowdown in new developments has aided the cooling absorption with inventory growing by only 1.1% between Q1 2024 and Q1 2025.
• Rent growth has experienced pressure due to moderated retail sales, which can be attributed in part to customers managing ongoing inflation. The rent growth rate stands at 1.5%, as of Q1 2025.

Austin Demographics

• Unemployment Rate: 3.5%
• Households: 1,085,163
• Current Population: 2,584,124
• Median Household Income: $102,109

Market Performance

Robust demand and limited space have resulted in tight market conditions in Austin’s retail sector. The market’s rapidly growing population, increasing household incomes, and strong consumption continue to draw retailers’ attention, producing high demand for retail space. Austin is one of the fastest expanding cities in the country, with much of that expansion taking place in the metro’s outer regions—an important source of retail demand.

Tenants vacated approximately 800,000 SF in Q1 2025, resulting in cooling absorption by only 112,000 SF, the lowest amount in three years. Large-scale businesses like Furniture Row, Big Lots, and Party City have lately closed stores or declared bankruptcy, contributing to this trend. Further supply relief is anticipated in 2025, with around 2 million SF forecast to be delivered, ensuring Austin as the national leader in inventory growth. However, it is likely to have little impact on the vacancy rate projections, seeing as 75% of the currently 3.7 million SF under construction is preleased or owner-occupied.

By the Numbers

• Sales Volume: $4.2M
• Cap Rate: 6.1%
• Market Sale Price Per SF: $343
• Vacancy Rate: 3.0%
• Rent Growth: 1.5%
• Market Asking Rent Per SF: $30.53
• SF Under Construction: 3.7M
• SF Delivered: 334K
• SF Absorbed: 164K | Q1 2025 | Source: CoStar Group

Construction

The market has seen a 34% drop in construction starts over the last twelve months. This has kept the overall construction pipeline restrained and delayed the pace of anticipated deliveries in 2025 and 2026. Despite this, Austin has the highest percentage of inventory under construction of any market in the country. At 3.0%, it is a familiar position for a high-growth Sunbelt market with strong in-migration.

Sales

While the market has limited available space, decreasing development activity, and substantial retailer demand, property owners are dealing with a difficult financing environment and declining property values. This has made owners hesitant to sell at lower rates, resulting in a slowdown in transaction activity. Strip centers’ cap rates have increased by around 50 to 75 basis points from the period prior to the Fed’s interest rate rises, and are now commonly traded above 6%.