With low vacancy, stable rental rates, and positive absorption, Houston’s industrial market remains one of the top ten healthiest U.S. industrial markets. Houston posted 2.1M SF of positive net absorption in the fourth quarter, pushing the net absorption for the year to 7.0M SF. Industrial leasing activity reached 2.7M SF, partly due to large tenants leasing some of the 4.4M SF of space currently under construction. Houston’s average industrial vacancy rate dropped 10 basis points between quarters to 5.2% from 5.3%, and remained unchanged when compared to the same quarter one year ago. The citywide average quoted industrial rental rate increased 0.3% between quarters to $5.92 from $5.90 per SF NNN, and increased 5.9% on a year-over-year basis from $5.59 per SF NNN.
Houston’s lack of available industrial inventory has spurred demand for new product. Developers have responded and currently have 4.4M SF under construction. Some of the increased activity has been driven by build-to-suit projects for companies expanding in or relocating to the Houston market; however, most is in spec developments (3.7M SF). As Houston’s available industrial inventory shrinks, we believe the increasing demand for new product will continue to spur both build-to-suit and spec development.