Houston Industrial Market Report | Q2 2017

by CoyDavidson on July 26, 2017

Houston’s industrial market sees continued growth on the east side due to boom in petrochemical industry

During the first half of 2017, 3.0M SF of Houston’s industrial inventory was absorbed, all occurring during the first quarter. Second quarter absorption was close to zero, posting only -13,100 SF.

The average vacancy rate increased 20 basis points over the quarter from 5.3% in to 5.5%. A little over 1.5M SF of new product delivered during the second quarter, bringing the mid-year new inventory total to over 5M SF. There is currently 4.2M SF under construction and 77.2% is pre-leased. Most of the leased space under construction are build-to-suit projects for companies such as Amazon, FedEx, Katoen Natie and Vinmar International.

In addition to the Industrial distribution and warehouse space under construction, two large petrochemical plants have been announced in recent months. Brazil-based Braskem announced late June it will build a $675 million petrochemical manufacturing facility next to its existing production facilities in La Porte, TX. And, LyondellBasell plans to build a $2.4 billion petrochemical plant near the Houston Ship Channel, the largest factory of its kind in the world. Both companies site the cheap cost of fuel, the large inventory available of natural gas liquids as well as access to foreign markets through exports as a source of growth in the petrochemical industry.

The average citywide quoted industrial rental rate decreased 2.7% on a quarterly basis from $7.08 per SF NNN to $6.89 per SF NNN, and it decreased marginally on an annual basis from $6.97 per SF NNN.

According to the U.S. Bureau of Labor Statistics, the Houston metropolitan area created 45,300 jobs (not seasonally adjusted) between May 2016 and May 2017. Most of the recent quarterly job growth occurred in employment services, public education, food services and drinking places, health care, and fabricated metal products.


Houston’s average industrial vacancy rate increased 20 basis points from 5.3% to 5.5% over the quarter. At the end of the second quarter, Houston had 28.7M SF of vacant industrial space for direct lease and an additional 1.3M SF of vacant sublease space. Among the major industrial corridors, the Northeast Corridor has the lowest vacancy rate at 2.3%, followed by the South at 3.4%, and then the Inner Loop at 4.7%. The largest percentage of vacant space is located in the North Corridor which has a 9.0% vacancy rate.

Currently in Houston, there is 4.2M SF of industrial space under construction and 77.2% is pre-leased. Only 2.0% of the spec space under construction is pre-leased at this time. The largest project under construction is the 855,000- SF build-to-suit Amazon fulfillment center located in Pinto Business Park in the North Fwy/Tomball Pky submarket.

Industrial Rental Rate and Vacancy Percentage

Houston Industrial Real a Estate Market


Houston’s industrial market posted almost no absorption in the second quarter, indicating there were close to an even number of tenants vacating space as there were moving into space. Year-to-date, Houston has absorbed close to 3.0M SF of positive net absorption. The Southeast Corridor has been the most active, posting 2.3M SF of positive absorption so far in 2017. The Southeast Corridor also has the most square feet under construction, totaling 1.5M SF.


According to CoStar, our data service provider, Houston’s citywide average quoted industrial rental rate for all product types decreased 2.7% over the quarter from $7.08 per SF NNN to $6.89 per SF NNN. According to Colliers’ internal data, actual lease transactions are in the $4.56 – $5.04 per SF NNN range for newer bulk industrial spaces, while flex rates range from $7.20 to $10.80 per SF depending on the existing improvements or the allowance provided for tenant improvements, and the location of the property. Rental rates overall, decreased slightly over the quarter. The average rental rate is a weighted average of available space currently listed for lease. The majority of the available space is located in a handful of submarkets with slightly lower than average rental rates which caused the average rate to drop over the quarter. According to CoStar, the average quoted NNN rental rates by property type are as follows: $6.56 per SF for Warehouse Distribution space; $11.01 per SF for Flex/Service space; with Tech/R&D space averaging $12.03 per SF.


Houston’s industrial leasing activity decreased 32% over the quarter from 5.2M SF in Q1 2017 to 5.6M SF in Q2 2017. Most of the transactions consisted of smaller renewals, but there were several new/direct deals that occurred. The table below highlights some of the larger transactions that occurred in Q2 2017.

▸ Click here to download the report as a PDF.

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