Houston Industrial Market Demand Weak in 2009
Houston’s industrial market closed 2009 with both gains and losses, that in the end were overwritten by an overall decrease in market activity due to weak tenant demand. Positive net absorption of 1.7 million SF citywide attested to the market’s resilience against the worst economic recession in recent history, even though it fell significantly below the 9.4 million SF of gains recorded in 2008. Occupancy levels above 90% for all the major industrial corridors was also indicative of a disciplined market able to keep supply levels in check against fast dwindling demand for all product types citywide. In keeping with the overall slowdown in market activity, paritularly in the second half of the year, landlords aggressively cut quoted rental rates, while also increasing lease concession packages, by way of stimulating lease activity. Double-digit year-over-year decreases in rental rates prompted some tenants to commit to new leased space in 2009, and may continue to motivate tenants to act in the coming year, although more systematic improvements to the larger economy may be necessary before a significant market turn-around begins.
The drastic curtailment of new industrial development was another positive for the local market, with only 1.3 million SF in the construction pipeline at year end-of which 1.0 million SF was accounted for in the build-to-suit for Rooms To Go warehouse in the Southwest Corridor-compared to 5.7 million SF of mostly speculative space underway at this time last year.
Overall, the Houston Industrial market’s single most important challenge in 2009 remained a dismal employment sector. In the twelve months ending in November 2009, Houston lost 88,900 jobs (representing 3.4% contraction), with economists expecting the year-end total to exceed 93,000 job losses. The outlook for 2010 is also a concern, with net job projected to reach between 2,000 and 5,000 jobs. Although significantly better than 2009, the coming year’s meager job gains are not likely to improve weak demand for industrial space that will continue to hamper market activity for all product types.