First Industrial then Office

by CoyDavidson on October 30, 2010

Houston Industrial Market Recovery Precedes Improvement in the Office Market

Early in my commercial real estate career I was told by senior brokers, that in Houston, office market fundamentals lag the Houston Industrial Real Estate Market. So if you begin to see signs of improvement in the Industrial real estate market, then the office market will follow. At the time, I didn’t really question why, I just assumed it to be true.

Houston is a big commercial real estate market, both in the Industrial and the Office sector. However, a significant proportion of Houston’s office space users come from the Energy Industry both upstream and downstream, as well as the manufacturers and service providers who cater to the Energy and Petrochemical Industry. So the premise seems logical, as our warehouses and manufacturing facilities fill up, then business is improving and office using jobs will at some point follow. The Houston economy has diversified some since I began in the CRE industry 20 years ago, but it is still a city whose fortunes rely significantly on the Energy Industry. When the Energy Industry is doing well, it trickles down to the banks, investment firms and  law firms with operations in Houston.

The Houston Industrial market is starting to show signs of strength while the office market remains anemic.

The Houston industrial market recorded 1.8M SF of positive net absorption in the third quarter bringing the year-to-date total to 4.4M SF, an improvement from the positive net absorption of 1.6M SF recorded through the third quarter last year. Occupancy also posted a slight gain with the citywide average at 93.9% in the third quarter, up from 93.2% at this time last year. Looking forward, Houston’s industrial sector is expected to improve gradually as key economic drivers move towards recovery. Provided this trends continues, we will at some point in 2011 begin to see some strengthening of fundamental in the office market. I will be watching closely to see if this premise still holds true.

Houston Industrial Market (3Q 2010)

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