Houston Industrial Market Report | Q3 2017

by CoyDavidson on October 25, 2017

Houston’s industrial market sees growth in distribution space and logistic hubs

During the third quarter of 2017, 3.0M SF of Houston’s industrial inventory was absorbed, pushing the 2017 year-to-date total to 6.2M SF. Although Houston’s economy slowed significantly in 2015 and remained weak in 2016, the demand for consumer products continues to spur growth in the industrial sector. Companies like Amazon, DHL and FedEx are just some of the tenants in the market leasing or building distribution and logistics hubs. Companies such as Ikea, Daikin, Lowes and Home Depot that manufacture and/or distribute buildings supplies for new developments, as well as now for rebuilding Harvey impacted properties, have expanded their footprint in the market as well.

The average vacancy rate has remained low for several years now, hovering between 5.5% and 5.3%. Over the quarter, the average vacancy rate decreased marginally from 5.5% to 5.4%. A little over 2.5M SF of new product delivered during the third quarter bringing the 2017 new inventory total to over 7.6M SF. Currently, 5.3M SF of industrial space is under construction of which 30.7% is pre-leased.

In addition to the Industrial distribution and warehouse space under construction, two large petrochemical plants are in the planning stages. Brazil-based Braskem’s $675 million polypropylene plant is scheduled to start construction near year-end 2017, with completion targeted for the first quarter of 2020. LyondellBasell plans to build a $2.4 billion petrochemical plant, the largest factory of its kind in the world near the Houston Ship Channel.

According to the U.S. Bureau of Labor Statistics, the Houston MSA created 53,500 jobs (not seasonally adjusted) between August 2016 and August 2017, an annual growth rate of 1.8%. Industry sectors that added jobs include: Mining and Logging, Manufacturing, Professional and Business Services, Health Care and Social Assistance, and Educational Services.


Houston’s average industrial vacancy rate decreased 10 basis points from 5.5% to 5.4% over the quarter. At the end of the third quarter, Houston had 28.5M 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 2.2%, followed by the South at 3.3%, and then the Inner Loop at 4.6%. The largest percentage of vacant space is located in the North Corridor which has an 8.5% vacancy rate. Currently 5.3M SF of industrial space is under construction in Houston, and 30.7% is pre-leased. Only 1.0% of the 3.7M SF of spec space under construction is pre-leased at this time. The largest project under construction is a 673,785- SF spec distribution warehouse located in the Northwest Outliers submarket.



Houston’s industrial market posted 3.1M SF of positive net absorption in the third quarter, bringing the year-to-date total to 6.2M SF. Some of the tenants contributing to the positive absorption include Amazon which is moving into its new 855,000 SF fulfillment center in the North Fwy/Tomball Pky submarket, and FedEx, which is opening its new 800,000 SF distribution warehouse in the Northwest Outliers submarket. The North and Northwest Corridors saw the largest positive net absorption during the third quarter, posting 1.3M SF and 1.2M SF, respectively.


According to CoStar, our data service provider, Houston’s citywide average quoted industrial rental rate for all product types decreased marginally over the quarter from $6.98 to $6.90 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.

According to CoStar, the average quoted NNN rental rates by property type are as follows: $6.55 per SF for Warehouse Distribution space; $10.08 per SF for Flex/Service space; with Tech/R&D space averaging $10.95 per SF.


Houston’s industrial leasing activity decreased 39.6% over the quarter from 6.8M SF in Q2 2017 to 4.1M SF in Q3 2017. Most of the transactions consisted of smaller renewals, but there were several new/direct deals that occurred.

▸ Click here to download the report as a PDF.

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