Houston’s industrial market was characterized by an overall slowdown in the third quarter, with occupancy, absorption and rental rates all posting decreases from this time last year. Occupancy continued its downward trend at 93.3%, slipping 130 basis points from 94.6% recorded twelve months earlier. The third quarter also marked the first significant drop in quoted rental rates, coupled with an increase in lease concessions, for all industrial property types. Citywide, net absorption was down on a year-over-year basis, although the major markets reported mixed results. While the Northwest Corridor – Houston’s largest industrial market with 27% of the total inventory- recorded year-to-date negative net absorption at 1.4 million sq. ft., the Southeast and North corridors each posted positive net absorption of 1.6 million sq. ft. and 1.2 million sq. ft., respectively. Despite pockets of market resilience, the prolonged economic uncertainty and weak employment sector weighed heavily on tenants and is expected to continue negatively impacting market fundamentals over the next six to nine months.
Decreased activity on the development front has been a welcome sign, preventing what could be additional pressure on occupancy as increased supply hits the market over the next three to six months. At the end of the third quarter, under construction projects totaled 1.7 million sq. ft., compared to 8.0 million sq. ft. underway at this time last year.
Overall, Houston’s industrial market continued to be challenged by the increasing local job losses reaching 95,100 or negative 3.6% jog growth in the 12 months ending in August 2009. The recent dismal announcements from Houston-based energy and energy related firms regarding additional job cuts and decreased capital spending in 2010 do not bode well for the industrial sector. Industrial growth is not likely over the next year as economies worldwide continue to feel the effects of the deepest recession in recent history and global trade, the manufacturing industry, and volatile energy markets-all primary drivers of the local market-struggle to return to normalcy.
View and download the full report: Houston Industrial Market Report 3Q 2009