Houston’s Year-to-Date Absorption Nearing 4M SF
Houston’s industrial market remains one of the ten healthiest U.S. industrial markets with low vacancy, stable rental rates and positive absorption. Houston posted 931K SF of positive net absorption in the third quarter, pushing the year-to-date total to 3.97M SF. Leasing activity reached 3.2M SF in the third quarter, pushing the year-to-date total to 9.9M SF. Despite the positive net absorption, the addition of new inventory combined with inventory RBA corrections, caused Houston’s average industrial vacancy rate to increase by 10 basis points from 5.1% to 5.2% in the third quarter. The overall average quoted industrial rental rate remained at $5.51 per SF NNN during the third quarter, but increased by 2.0% on a year-over-year basis from $5.41 per SF NNN.
Houston’s lack of available industrial inventory has spurred demand for new product. Developers have responded to the demand and currently have over 2.3M SF under construction. Much of the increased activity has been driven by build-to-suit projects for companies expanding in and relocating to the Houston market; however, there is now more spec development, 1.5M SF, than build-to-suit projects. As Houston’s available industrial inventory shrinks, we believe the demand for new product will continue to increase, both for build-to-suit and spec development.
The Houston metropolitan area added 89,500 jobs between August 2011 and August 2012, an annual increase of 3.5% over the years prior job growth. Further, Houston’s unemployment rate fell to 7.0% from 8.6% one year ago which has bolstered Houston area home sales which increased annually by 20.0%. With continued expansion in the energy industry and a strong housing market, Houston’s economy is expected to remain healthy for both the near and long-term.
Absorption, New Supply & Vacancy Rates
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