Houston’s industrial market continues to expand adding 3.4M SF of new inventory in Q1 2019 with an additional 16.2M SF under construction
Houston’s industrial market continues to expand, adding 3.4M SF in new inventory in the first quarter. There are 110 buildings with
16.2M SF of space under construction and scheduled to deliver in 2019 and early 2020. Some of the tenants that have or will be occupying the new inventory include Grocers Supply, Coca-Cola, Conn’s HomePlus, PBP | Plastic Bagging & Packaging and American Furniture Warehouse. Not all of the new construction is pre-leased which will increase the vacancy rate if not committed before delivery. The first quarter of 2019 saw an increase in vacancy, but Houston’s industrial market is healthy and the average vacancy rate only increased 30 basis points over the quarter from 5.6% to 5.9%.
Houston’s net absorption decreased by almost 1M SF over the quarter from 2.3M SF to 1.4M SF of positive net absorption. A vast majority of the leasing activity can be attributed to an expanding need for manufactured and consumer goods distribution in the growing Houston metro area.
Houston’s job growth increased by 2.4% over the year, according to recent data released by the U.S. Bureau of Labor Statistics. The Houston MSA created 72,600 jobs (not seasonally adjusted) between February 2018 and February 2019, growing faster than the U.S. during the same time period. Employment sectors with the most growth include support activities for mining which grew by 9.0% over the year, durable goods manufacturing which was up by 7.6% and construction which increased by 7.1% over the year.
Vacancy & Availability
On an annual basis, Houston’s average industrial vacancy increased 80 basis points from 5.1% in Q1 2018 to 5.9% in Q1 2019. It rose 30 basis points on a quarterly basis from 5.6% in Q4 2018. At the end of the first quarter, Houston had 32.4 million SF of vacant industrial space for direct lease and an additional 1.6 million SF of vacant space for sublease. Among the major industrial corridors, the South Corridor had the lowest vacancy rate at 3.5%, followed by the Inner Loop Corridor at 4.7%. The submarket with the largest percentage of vacant space is the Northwest Corridor which had a 7.2% vacancy rate and the largest amount of new inventory, 1.7M SF, delivered during the first quarter.
Absorption & Demand
Houston’s industrial market posted 1.4M SF of positive net absorption in the first quarter, a 59% decrease from the 2.3M SF posted in the previous quarter. Some of the tenants that relocated or expanded include Plantgistix, AIV Inc, Hailiang Group (USA, Inc), Houston Fruitland, Inc, Smart Warehousing LLC and Box Gang Manufacturing.
The majority of first quarter positive net absorption occurred in the Southeast Corridor which recorded 724,000 SF of space absorbed. The North, Inner Loop, South and Southwest Corridors also recorded positive net absorption in the first quarter of 2019. The submarket with the highest amount of negative absorption was the Northwest Corridor, which posted 504,000 SF of negative net absorption due to new inventory delivering with vacancies..
Q1 2019 Houston Industrial Highlights
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