Houston’s Industrial Market 2013 YTD Positive Net Absorption Reaches 4.5M SF
Houston’s industrial market remains one of the top ten healthiest U.S. industrial markets because of its low vacancy, stable rental rates, and positive absorption. Houston posted 1.1M SF of positive net absorption in the third quarter, bringing the year-to-date net absorption to 4.5M SF. Industrial leasing activity reached 3.4M SF, mostly due to large renewals. Houston’s average industrial vacancy rate increased from 5.0% to 5.3% between quarters because of the new space added to the market, and remained unchanged when compared to the same quarter one year ago. The citywide average quoted industrial rental rate increased to $5.86 from $5.74 per SF NNN between quarters, and increased on a year-over-year basis from $5.77 per SF NNN.
Houston’s lack of available industrial inventory has spurred demand for new product. Developers have responded and currently have 5.7M SF under construction. Some of the increased activity has been driven by build-to-suit projects for companies expanding in or relocating to the Houston market; however, more than half is in spec developments (3.2M SF). As Houston’s available industrial inventory shrinks, we believe the increasing demand for new product will continue to spur both build-to-suit and spec development.
The Houston metropolitan area added 80,700 jobs in the year ending August 2013, an annual increase of 3.0% over the prior year’s job growth. Further, Houston’s unemployment fell to 6.1% from 6.9% one year ago.
With continued expansion in the energy industry, Houston’s economy is expected to remain healthy for both the near and long-term.
Vacancy & Availability
Although 2.6M SF of new inventory delivered during the third quarter, Houston’s industrial vacancy rate only increased from 5.0% to 5.3% between quarters.
At the end of the second quarter, Houston had 25.5M SF of vacant industrial space citywide, 1.5M SF more than the previous quarter. Among the major industrial corridors, the Northeast Corridor has the lowest vacancy rate, 3.0%, followed by the Northwest Corridor at 4.2%.
Houston’s industrial construction pipeline had 5.7M SF of projects underway at the end of the third quarter, including 3.2M SF of spec development. The largest project under construction is a 535,000-SF BTS distribution warehouse for Igloo, located in Katy, TX. A list of additional buildings currently under construction can be found on Page 4 of this report. The largest spec project in the pipeline is a 328,000-SF distribution warehouse located on Imperial Valley Drive in North Houston.
Houston’s citywide average quoted industrial rental rate for all product types increased from $5.74 to $5.86 per SF NNN in the third quarter.
By property type, the average quoted NNN rental rates are as follows: $5.52 per SF for Distribution space; $4.49 per SF for Bulk Logistics space; $6.00 per SF for Flex/Service space; with Tech/R&D space averaging $12.56 per SF.
Absorption & Demand
Houston’s industrial market posted 1.1M SF of positive net absorption in the third quarter, bringing the 2013 year-to-date total to 4.5M SF of positive net absorption. The North and Northwest Corridor submarkets out- performed all others in the third quarter, posting the largest positive net quarterly absorptions of 398K SF and 324K SF, respectively.
There were several major tenant move-ins contributing to net absorption gains in the third quarter, including Crowley Maritime (128,500 SF); Favorite Brands (91,200 SF); Delta Petroleum (67,400 SF); Crane Worldwide (64,800 SF); and National Oilwell Varco ( 57,900 SF).
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