Future Cities
Emerging Industrial Markets: Texas I-35 Corridor
March 17, 2022
The Texas I-35 Corridor continues to grow at a rapid pace, fueled by record demand and speculative development. San Marcos and New Braunfels, located along the 80-mile stretch between Austin and San Antonio, are among the fastest-growing cities in the nation and are attracting many manufacturing and distribution users. With an influx of new residents and numerous companies relocating operations to Central Texas, robust industrial activity is expected to continue.
Demographics
More than 5.9 million people live within 100 miles of the Austin and San Antonio metro areas, with a projected growth rate of 10.1% over the next five years. The important 18-to-34 age group accounts for more than 25% of the total population. Within 250 miles, occupiers can reach 25.4 million consumers.
Figure 1: Texas I-35 Corridor Population Analysis
Source: CBRE Location Intelligence.
The I-35 Corridor has a warehouse labor force of 46,000, according to CBRE Labor Analytics, and is forecast to grow by 21.2% over the next decade—one of the highest rates in the nation. The average hourly wage for a non-supervisory warehouse worker is $16.23 in Austin and $15.59 in San Antonio.
Figure 2: Texas I-35 Corridor Warehouse & Storage Labor Fundamentals
Source: CBRE Labor Analytics.
Location Incentives
Over the past five years, there have been 72 economic incentive deals totaling more than $201 million at an average of $6,918 per new job in the Austin and San Antonio metropolitan areas combined.
According to CBRE’s Location Incentives Group, among the top incentive programs offered in Austin and San Antonio is the Texas Enterprise Fund (TEF), commonly referred to as a “deal-closing” grant. TEF awards discretionary cash grants to companies considering a new project for which a Texas site is competing against other out-of-state options. Award amounts are determined based on the average wage of new employees, the hiring timeline and a company’s total capital investment.
Another incentive program is the Skills Development Fund, which provides job training grants to community and technical colleges for customized training programs that support Texas businesses. This job training program is designed to upgrade the skill levels of new or existing employees, as well as increase wages of the Texas workforce.
Figure 3: Top Incentive Programs
Source: CBRE Location Incentives Group
Logistics Driver
The Austin and San Antonio industrial markets are connected by Interstate 35, less than a 90-minute drive or approximately 80 miles from each other. Plentiful land sites along the I-35 Corridor have accommodated a large amount of big-box industrial development in recent years.
The region is home to two major airports with cargo capabilities: Austin-Bergstrom International and San Antonio International. Carriers serving Austin-Bergstrom International include Amazon Air, Atlas Air, DHL, FedEx and UPS. In response to Austin’s growing economy, the airport has plans to expand its cargo operations. San Antonio International also has announced plans to upgrade its airfield, terminals and ground access over the next two decades.
In addition to I-35, several major highways cross through the region, including I-37 and I-10, which provides direct access to the West and East coasts. I-35 also connects the region with Mexico and Canada, making it a major beneficiary of the USMCA trade agreement. The region is also home to one of the biggest rail terminals in Texas.
Supply & Demand
The Texas I-35 Corridor benefits from a growing population, increased manufacturing and a plethora of logistics drivers. Austin is a diverse industrial market made up of manufacturing, flex and last-mile distribution facilities. Manufacturing demand in Austin is particularly growing, as evidenced by Tesla’s new 4.5 million-sq.-ft. electric-vehicle assembly plant.
Austin has an industrial inventory totaling 57.7 million sq. ft., 97% of which is in facilities of less than 500,000 sq. ft. The metro area recorded net absorption of 3.6 million sq. ft. in 2021, a 71% increase from 2020 and the highest total since 2014, which halved the market’s industrial vacancy rate to 4.9%. Austin’s plethora of flex and manufacturing facilities creates much higher asking rents compared with San Antonio, finishing 2021 at $11.07 per sq. ft., 8.8% higher than the previous year.
San Antonio has an industrial inventory totaling 51.8 million sq. ft., the majority of which is warehouse/distribution facilities. Construction completions fell to 1.2 million sq. ft. in 2021 from 2.9 million sq. ft. in 2020; however, the market has a current construction pipeline of 24 projects totaling just over 8.1 million sq. ft., 61.7% of which is preleased. A surge of new leasing activity dropped San Antonio’s industrial vacancy rate by 5 percentage points last year to 9.9%, while average rent grew by 22.3% to $6.74 per sq. ft.
More retailers, wholesalers and third-party logistics providers are expected to target the Texas I-35 Corridor in coming years. Continued warehouse and manufacturing development along I-35 will eventually merge Austin and San Antonio into one cohesive market. Strong demand will further lower the vacancy rate and increase rents, making the region very attractive to investors for the foreseeable future.
Figure 4: Austin Historical Data
Source: CBRE Research, Q4 2021.
Figure 5: Austin Size Range Comparison
Source: CBRE Research, Q4 2021
Figure 6: San Antonio Historical Data
Source: CBRE Research, Q4 2021. *Market data was not published Q1 2014 or Q2-Q4 2016.
Figure 7: San Antonio Size Range Comparison
Source: CBRE Research, Q4 2021
Emerging Industrial Markets
Spotlighting markets across North America that offer demographic, logistics and incentives advantages for industrial investors and occupiers
Related Insights
Contacts
John Morris
President, Americas Industrial & Logistics, Advisory Services
