Houston Industrial Market Posts Strong Absorption Gains

by CoyDavidson on April 29, 2010

Houston’s industrial market began 2010 on a strong note with positive net absorption gains of 1.8M SF, the highest level recorded since the third quarter 2008. Citywide, 93.4% occupancy in the first quarter marked a 20 basis points (bps) increase from the previous quarter. On the leasing front, six tenants signed leases over 100,000 SF in the first quarter, with newer, state-of-the-art buildings continuing to draw the most tenant activity. After only five months since opening, Panattoni’s Airtex Industrial Center reached 90% occupancy, with the project receiving a strong boost from Ashley Furniture’s 303,000-SF lease, the largest year-to-date industrial lease citywide. By way of incentivizing tenants to lease space in the coming year, landlords once again reduced quoted rental rates, while also increasing lease concession packages, for all product types. The overall industrial $4.88 NNN per SF rental rate decreased 11.3% from this time last year, but only 1.4% from the previous quarter, suggesting rates will likely reach bottom this year.

Looking forward, new industrial deliveries are not expected to impact occupancy levels in 2010, with only 202,000 SF under construction at the end of the first quarter, compared to 3.6M SF underway at this time last year. The largest project under construction is Carson Companies’ Portwall Distribution Center Phase Portwall Street), scheduled to add just under 150,000 SF to the Northeast Inner Loop by August 2010. Speculative industrial construction is not expected to resume in Houston before 2012.

Overall, Houston’s industrial market and economy remain among the strongest in the U.S. In March 2010, Forbes ranked Houston fourth among U.S. major metros where the recession is easing, due primarily to a solid diversified base of growth industries. In April 2010, IHS Global Insights forecast an 8.5% increase shipping volume, and a increase trade from Asia to North America. Houston is well-positioned to benefit from increased trade and rising oil prices as global economic markets continue strengthening through this year. With commercial real estate a lagging indicator, however, the industrial market’s sustained recovery is not expected before 2011.

Houston Industrial Market Report 1Q 2010

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