Although Houston’s economy slowed significantly in 2015 and remained weak in 2016-2017, the demand for consumer products continues to spur growth in the industrial sector. Companies like Amazon, Walmart, Best Buy and FedEx are just some of the tenants in the market leasing, building, or moving into distribution and logistics hubs. During the first quarter of 2018, developers have been busy constructing over 9.2M SF of new industrial inventory, 6.6M SF of which is speculative. Much of the development and leasing activity is located in the East-Southeast Far submarket and can be tied directly to Houston’s Port activity. The average vacancy rate only increased 10 basis points over the quarter, even though 2.1M SF of new inventory was completed. Over 1.5M SF of Houston’s industrial inventory was absorbed during the first quarter of 2018. Companies such as Amazon, Kuraray America, GHX, Flexo and Air General relocated and/or expanded during the first quarter.
According to the U.S. Bureau of Labor Statistics, the Houston MSA created 67,100 jobs (not seasonally adjusted) between February 2017 and February 2018, an annual growth rate of 2.2%, which is above the national average job growth rate of 1.6%.
Vacancy & Availability
Houston’s average industrial vacancy rate increased 10 basis points from 5.2% to 5.3% over the quarter. At the end of the first quarter, Houston had 27.8M SF of vacant industrial space for direct lease and an additional 1.8M SF of vacant sublease space. Among the major industrial corridors, the Northeast Corridor had the lowest vacancy rate at 2.1%, followed by the South Corridor at 3.5%. The submarket with the largest percentage of vacant space is the North Corridor which had a 6.9% vacancy rate.
Absorption & Demand
Houston’s industrial market posted 2.1M SF of positive net absorption in the first quarter, an increase from the 613,000 SF recorded in the previous quarter. Some of the tenants that relocated or expanded into newly constructed space during Q1 2018 include Amazon (1,016,000 SF) in the Northwest Outliers submarket, Kuraray America (465,851 SF) in the East-Southeast Far submarket and Flexo Converters USA (112,000 SF) in the North Hardy Toll Rd submarket. The Northwest and North Corridors posted the largest amount of positive net absorption during the first quarter, posting 1.2M SF and 0.6M SF, respectively. The submarkets with the highest amount of negative absorption include the Inner Loop and Southwest Corridors, posting negative 0.3M SF and 0.2M SF, respectively.