Houston’s industrial market continues to expand, adding 4.4M SF to its inventory in the third quarter, an increase of 158.8% over the quarter. There is another 10.3M SF under construction which is scheduled to deliver over the next two quarters. Some of the tenants that have or will be occupying the new inventory include Grocers Supply, Best Buy, and Conn’s HomePlus, to name a few. Not all of the new construction is pre-leased which will increase the vacancy rate, but Houston’s industrial market is healthy and the vacancy rate increased by only 40 basis points over the quarter from 5.3% to 5.7%. Year-to-date, 85 industrial buildings have been completed adding over 9.5M SF to Houston’s industrial inventory.
Houston’s net absorption jumped significantly over the quarter, increasing 157% from 0.7M SF to 1.8M SF. A vast majority of the leasing activity can be attributed to an expanding population driven by job growth which increases consumer spending and demand for logistics and distribution hubs.
Houston’s job growth increased by 3.7% over the year according to recent data released by the US Bureau of Labor Statistics. The Houston MSA created 101,200 jobs (not seasonally adjusted) between August 2017 and August 2018, growing faster than Texas and the U.S. during the same period. Employment sectors with the most substantial growth include construction which grew by 13.5% over the year, and professional and business services which increased by 7.2%.
Vacancy & Availability
Houston’s average industrial vacancy rate increased 40 basis points from 5.3% to 5.7% over the quarter. At the end of the third quarter, Houston had 31.1 million SF of vacant industrial space for direct lease, and an additional 1.6 million SF of vacant sublease space. Among the major industrial corridors, the Northeast Corridor had the lowest vacancy rate at 3.0%, followed by the South Corridor at 3.6%. 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 1.8 million SF of positive net absorption in the third quarter, a huge increase from the 0.7 million SF of positive absorption recorded in the previous quarter. Some of the tenants that relocated or expanded include DXP Enterprises, Utopia Fullfillment, Vinmar International, Western Post USA, Kuraray America and General Electric. The majority of third quarter positive net absorption occurred in the Southeast Corridor which recorded 1.4M SF of space absorbed. The North, Northwest, Southwest and South Corridors also recorded positive net absorption in third quarter 2018. The submarket with the highest amount of negative absorption was the Inner Loop Corridor, which posted 482,120 SF of negative net absorption.
Q3 2018 Houston Industrial Highlights
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