Q3 2017 | Houston Industrial Market Report

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Houston’s industrial market sees growth in distribution space and logistic hubs

During the third quarter of 2017, 3.0M SF of Houston’s industrial inventory was absorbed, pushing the 2017 year-to-date total to 6.2M SF. Although Houston’s economy slowed significantly in 2015 and remained weak in 2016, the demand for consumer products continues to spur growth in the industrial sector. Companies like Amazon, DHL and FedEx are just some of the tenants in the market leasing or building distribution and logistics hubs. Companies such as Ikea, Daikin, Lowes and Home Depot that manufacture and/or distribute buildings supplies for new developments, as well as now for rebuilding Harvey impacted properties, have expanded their footprint in the market as well.

The average vacancy rate has remained low for several years now, hovering between 5.5% and 5.3%. Over the quarter, the average vacancy rate decreased marginally from 5.5% to 5.4%. A little over 2.5M SF of new product delivered during the third quarter bringing the 2017 new inventory total to over 7.6M SF. Currently, 5.3M SF of industrial space is under construction of which 30.7% is pre-leased.
In addition to the Industrial distribution and warehouse space under construction, two large petrochemical plants are in the planning stages. Brazil-based Braskem’s $675 million polypropylene plant is scheduled to start construction near year-end 2017, with completion targeted for the first quarter of 2020. LyondellBasell plans to build a $2.4 billion petrochemical plant, the largest factory of its kind in the world near the Houston Ship Channel.

According to the U.S. Bureau of Labor Statistics, the Houston MSA created 53,500 jobs (not seasonally adjusted) between August 2016 and August 2017, an annual growth rate of 1.8%. Industry sectors that added jobs include: Mining and Logging, Manufacturing, Professional and Business Services, Health Care and Social Assistance, and Educational Services.

Vacancy & Availability

Houston’s average industrial vacancy rate decreased 10 basis points from 5.5% to 5.4% over the quarter. At the end of the third quarter, Houston had 28.5M SF of vacant industrial space for direct lease and an additional 1.3M SF of vacant sublease space. Among the major industrial corridors, the Northeast Corridor has the lowest vacancy rate at 2.2%, followed by the South at 3.3%, and then the Inner Loop at 4.6%. The largest percentage of vacant space is located in the North Corridor which has an 8.5% vacancy rate.

Currently 5.3M SF of industrial space is under construction in Houston, and 30.7% is pre-leased. Only 1.0% of the 3.7M SF of spec space under construction is pre-leased at this time. The largest project under construction is a 673,785- SF spec distribution warehouse located in the Northwest Outliers submarket. A partial list of buildings currently under construction can be found on page 3 of this report.

Industrial Rental Rate and Vacancy Percentage

Absorption & Demand

Houston’s industrial market posted 3.1M SF of positive net absorption in the third quarter, bringing the year-to-date total to 6.2M SF. Some of the tenants contributing to the positive absorption include Amazon which is moving into its new 855,000 SF fulfillment center in the North Fwy/Tomball Pky submarket, and FedEx, which is opening its new 800,000 SF distribution warehouse in the Northwest Outliers submarket. The North and Northwest Corridors saw the largest positive net absorption during the third quarter, posting 1.3M SF and 1.2M SF, respectively.

Rental Rates

According to CoStar, our data service provider, Houston’s citywide average quoted industrial rental rate for all product types decreased marginally over the quarter from $6.98 to $6.90 per SF NNN. According to Colliers’ internal data, actual lease transactions are in the $4.56 – $5.04 per SF NNN range for newer bulk industrial spaces, while flex rates range from $7.20 to $10.80 per SF depending on the existing improvements or the allowance provided for tenant improvements and the location of the property.
According to CoStar, the average quoted NNN rental rates by property type are as follows: $6.55 per SF for Warehouse Distribution space; $10.08 per SF for Flex/Service space; with Tech/R&D space averaging $10.95 per SF.

Leasing Activity

Houston’s industrial leasing activity decreased 39.6% over the quarter from 6.8M SF in Q2 2017 to 4.1M SF in Q3 2017. Most of the transactions consisted of smaller renewals, but there were several new/direct deals that occurred. The table below highlights some of the larger transactions that closed in Q3 2017.

Q3 2017 Industrial Lease Transactions over 50,000 SF 

Pinto Business Park
Emser Tile2 Aug-17
Prologis Park Jersey Village
Northwest 300,000 Home Depot3 Sept-17
Bayport North Distribution Center II  Southeast  225,000  Supply Chain Management1,3  Jul-17 
Point North Cargo Park  Northeast  181,540  Starplast3  Sept-17 
Central Green Corporate Center  North  128,924  DHL3  Sept-17 
Satsuma Distribution Center 1  Northwest  99,840  Mahindra USA Inc.1,3  Aug-17 

1Colliers International Transaction
2Pre-lease in a proposed/under construction building 

Q3 2017 Industrial Under Construction - 200,000 SF or greater







525 Cane Island Pky

Northwest Outlier



Oakmont Industrial Group


Fallbrook Dr
North Fwy/Tomball Pky 600,000 100% Hines Jun-18
Cedar Port Distribution Park  East-Southeast Far  500,000  100%  Avera Companies  Sep-18 
*4838 Borusan Rd  East-Southeast Far  501,020  0%  Clay Development  Aug-18 
Northwest Logistics Center  West Outer Loop  411,442  0%  Stream Realty Partners, L.P.  Jun-18 
Cutten Distribution Center I  North Fwy/Tomball Pky  293,280  0%  Clay Development  Jan-18 
Bayport South Business Park
10535 Red Bluff Rd 
East-Southeast Far  257,835  0%  Johnson Development  Feb-18 
Energy Commerce Bldg D  East-Southeast Far  232,960  0%  Clay Development
22533 NW Lake Dr  Northwest Outlier  231,839  0%  The Carson Companies  Mar-18 
5121 AmeriPort Pky Bldg VII  East-Southeast Far  203,840  100%  National Property Holdings  Apr-18 
*In permitting process 

Q3 2017 Industrial Highlights




Q3 2017 | Houston Industrial Market Report

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