Houston’s industrial market continues to expand, adding 1.9M SF to its inventory in the fourth quarter, pushing the year-end total to 11.2M SF in 114 buildings. There are another 85 buildings with 11.9M SF of space under construction and scheduled to deliver in 2019. Some of the tenants that have or will be occupying the new inventory include Grocers Supply, MRC Global, Valvoline, Conn’s HomePlus, PBP | Plastic Bagging & Packaging and AIV Inc. Not all of the new construction is pre-leased which might increase the vacancy rate if it is not leased before delivery, but Houston’s industrial market is healthy and the average vacancy rate decreased 10 basis points over the quarter from 5.6% to 5.5%.
Houston’s net absorption decreased by 200,000 SF over the quarter from 2.7M SF to 2.5M SF and finished the year with a total of 9.0M SF of positive net absorption. 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.
The rate of Houston’s job growth increased by 3.7% over the year according to data recently released by the US Bureau of Labor Statistics. The Houston MSA created 114,400 jobs (not seasonally adjusted) between November 2017 and November 2018, growing faster than the U.S. during the same time period. Employment sectors with the most substantial growth include support activities for mining which grew by 11.7% over the year, the construction sector which increased by 10.8%, and durable goods manufacturing which was up by 9.0% over the year.
Vacancy & Availability
Houston’s average industrial vacancy increased 40 basis points on an annual basis from 5.1% in Q4 2017 to 5.5% in Q4 2018, and decreased 10 basis points on a quarterly basis from 5.6% in Q3 2018. At the end of the fourth quarter, Houston had 29.6 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 3.5%, followed by the South Corridor at 3.9%. The submarket with the largest percentage of vacant space is the North Corridor which had a 7.1% vacancy rate.
Absorption & Demand
Houston’s industrial market posted 12.5 million SF of positive net absorption in the fourth quarter, pushing the year-end total to 9.0M SF. Some of the tenants that relocated or expanded include Polytex Fibers, Goodman Manufacturing, Veritiv Operating Company, United States Postal Service, Lowes and Kitchen Cabinet Distributors. The majority of fourth quarter positive net absorption occurred in the Northwest Corridor which recorded 2.0M SF of space absorbed. The Northeast, Southeast and Southwest Corridors also recorded positive net absorption in the fourth quarter 2018. The submarket with the highest amount of negative absorption was the Inner Loop Corridor, which posted 191,779 SF of negative net absorption.
Q4 2018 Houston Industrial Highlights
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