Q2 2019 | Houston Industrial Market Report

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Houston’s industrial market expansion continues adding 8.9M SF of new inventory in the first half of 2019

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Houston’s industrial market expansion continues with 8.9M SF of new inventory added in the first half of 2019. There are 143 buildings with 14.8M SF of space under construction and scheduled to deliver in 2019 and early 2020. Larger tenants that have or will be occupying a portion of the new inventory include Coca-Cola (1M SF), BMW of North America Inc. (140K SF), and American Furniture Warehouse (355K SF). Not all of the new construction is pre-leased which will increase the vacancy rate if not leased before delivery. The second quarter of 2019 saw an increase in vacancy but, provided leasing activity remains steady, Houston’s industrial market should remain healthy. Anecdotally, new tenants in the market looking for space increased in Q2 after somewhat sluggish demand in Q1 following the tariff scare from Q4. The average vacancy rate only increased 60 basis points over the quarter from 5.7% to 6.3% even with the addition of 5.5M SF of new inventory.

On an annual basis, Houston’s average industrial vacancy increased 100 basis points from 5.3% in Q2 2018 to 6.3% in Q2 2019. It rose 60 basis points on a quarterly basis from 5.7% in Q1 2019. At the end of the second quarter, Houston had 35.1M SF of vacant industrial space for direct lease and an additional 1.6M SF of vacant space for sublease. Houston’s industrial market posted 1.9M SF of positive net absorption in the second quarter, pushing the year-to-date total absorption to 4.2M SF.

Houston’s job growth increased by 2.6% over the year, according to recent data released by the U.S. Bureau of Labor Statistics. The Houston MSA created 79,800 jobs (not seasonally adjusted) between May 2018 and May 2019, growing faster than the U.S. during the same time period. Employment sectors with the most substantial growth include architectural, engineering and related services which grew by 12.8%, support activities for mining which grew by 12.1% over the year and durable goods manufacturing up by 9.3%.

Vacancy & Availability

On an annual basis, Houston’s average industrial vacancy increased 100 basis points from 5.3% in Q2 2018 to 6.3% in Q2 2019. It rose 60 basis points on a quarterly basis from 5.7% in Q1 2019. At the end of the second quarter, Houston had 35.1M SF of vacant industrial space for direct lease and an additional 1.6M SF of vacant space for sublease. Among the major industrial corridors, the Inner Loop Corridor had the lowest vacancy rate at 4.4%, followed by the South Corridor at 45%. The submarket with the largest percentage of vacant space is the Northwest Corridor which had a 7.5% vacancy rate.

Absorption & Demand

Houston’s industrial market posted 1.9M SF of positive net absorption in the second quarter, pushing the year-to-date total absorption to 4.2M SF. Some of the tenants that relocated or expanded include Conn’s Home Plus, moving into 656,600 SF in the North Corridor, Plastic Bagging & Packaging moving into 519,000 SF in the Southeast Corridor and Kuraray America moving into 192,200 SF in the Southeast Corridor.

The majority of first quarter positive net absorption occurred in the North and Southeast Corridors, recording 1.3M SF and 1.2M SF, respectively. The Inner Loop and Southwest Corridors also recorded positive net absorption in the second quarter of 2019. The Southeast Corridor had the largest amount of new inventory, 1.8M SF, delivered during the second quarter.

Q2 2019 Houston Industrial Highlights

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Q2 2019 | Houston Industrial Market Report

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Lisa Bridges

Director of Market Research | Houston

Houston

Lisa joined Colliers in 2010 as Director of Market Research bringing 26 years of commercial real estate experience to the firm. Lisa initiates proactive market research projects to further the business goals of the company. She writes and prepares 29 market reports annually which include quarterly reports on Houston’s retail, office, industrial and healthcare properties.  Further, she prepares statistical ownership reports for various clients as well as an annual Houston Economic Overview. Lisa also creates PowerPoint market presentations, trade journal articles, and other marketing materials in support of the company's business endeavors. She works with senior management in planning the company's marketing strategy and public relations support for local and national conferences, luncheon meetings, recruitment programs, and special events.  Lisa works closely with the company's brokers to develop effective custom market research material specific to both existing and potential clients.

Lisa serves on the Colliers International Editorial Board, the Colliers International U.S. Research Council, is a Colliers Center of Excellence team member and is a recipient of the Colliers International Researcher of the Year Award.

Lisa earned the Commercial Property Research Certification (CPRC) from Colliers University.  CPRC is the first and only accreditation for commercial real estate research professionals. It offers a professional development path to increase strategic and tactical expertise in marketing/research, knowledge of the industry and capabilities with commercial real estate tools.

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