Q2 2018 Industrial Graph 1Houston industrial tenants move to new space, increasing vacancy in older inventory

E-commerce continues to expand, helping to grow Houston’s industrial inventory. More than 12.3 million SF of industrial space is currently under construction, much of that in the form of distribution and logistics facilities. Liberty Property Trust is developing a 727,600-SF distribution warehouse located at 14803 Woodham Drive in the North Hardy Toll Rd submarket for Grocers Supply and a 550,000-SF distribution center is under construction at 636 Highway 90 in the Hwy 59/Hwy 90 submarket for Best Buy, just to name a few.

In general, the negative absorption as a percentage of the 560 million SF of existing industrial inventory is a small number, but we do keep an eye on vacancies as they arise. The vacancies created during the quarter of 2018 resulted from tenants who left older functionally obsolete buildings in a “flight to quality” for newer, state of the art buildings in different submarkets, or a couple of smaller 60,000 - 80,000 SF tenants that closed operations due to corporate M&A activity, or due to other restructuring. The strength of the market overall, including the balance of new deliveries in submarkets around the city indicate that the overall industrial market is healthy.

According to the U.S. Bureau of Labor Statistics, the Houston MSA created 79,200 jobs (not seasonally adjusted) between May 2017 and May 2018, an annual growth rate of 2.6%, which is above the national average job growth rate of 1.6%. The largest gains by sector include manufacturing, construction and employment services.

Vacancy & Availability

Houston’s average industrial vacancy rate increased 20 basis points from 5.3% to 5.5% over the quarter. At the end of theecond quarter, Houston had 28.8 million SF of vacant industrial space for direct lease and an additional 1.9 million SF of vacant sublease space. Among the major industrial corridors, the Northeast Corridor had the lowest vacancy rate at 2.5%, followed by the South Corridor at 3.9%. The submarket with the largest percentage of vacant space is the Northwest Corridor which had a 6.0% vacancy rate.

Absorption & Demand

Houston’s industrial market posted 231,558 of negative net absorption in the second quarter, a significant decrease from the 2.8 million SF or positive absorption recorded in the previous quarter. The negative absorption as a percentage of the total existing industrial inventory is a small number and was mostly the effect of tenants relocating to newly delivered space, leaving older space vacant. Some of the tenants that relocated or expanded into newly constructed space during Q1 2018 include B&H Bag Company (186,306 SF) in the Northwest Outliers submarket, Evoqua Water Technologies (107,000 SF) in the North Hardy Toll Rd submarket and ThyssenKrupp (71,916 SF) in the North Fwy/ Tomball Pky submarket.

The Southeast and North Corridors posted the largest amount of positive net absorption during the second quarter, posting 0.4 million SF and 0.3 million SF, respectively. The submarket with the highest amount of negative absorption was the Northwest Corridor, posting 962,116 SF of negative net absorption.

Q2 2018 Houston Industrial Highlights

Houston Q2 2018 Industrial Infographic31

Q2 2018 Industrial Front Page Screenshot

 

 

 

 

 

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