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Q1 2022 | Houston Industrial Market Report

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2022_Q1_Industrial_Skyline_1536x1040

 

"We expect user demand in SE Texas to remain very strong in the industrial market as re-shoring and supply chain adjustments accelerate. While there are many storm clouds on the horizon, we expect 2022 to be a solid year for industrial real estate in Houston and SE Texas."
Patrick Duffy | President of Colliers in Houston

   

Key Takeaways

  • Robust leasing activity
  • Positive net absorption
  • Vacancy drops
  • Rental rates increase
  • Cap rates continue to compress
2022_Q1_Industrial_Vacancy Rate   2022_Q1_Industrial_Net Absorption 
     
 2022_Q1_Industrial_Under Construction    2022_Q1_Industrial_Lease Rates

 

Houston Highlights

Houston’s Industrial market continued to gain momentum as leasing velocity reached 10 million square feet in the first quarter. The increase in demand for space continued to spur new development with over 18 million square feet under construction and an additional 65 million square feet proposed or in the final planning stage. Houston’s industrial market recorded 5.6 million square feet of positive net absorption in the first quarter. The vacancy rate decreased 220 basis points annually from 8.7% in Q1 2021 to 6.5% in Q1 2022.

Market Highlights

2022_Q1_Industrial_Market Indicators 

Historic Comparison

2022_Q1_Industrial_Historic Comparison 

 

Market Fundamentals

2022_Q1_Industrial_Market Fundamentals 

The forecast in the above graph is based on a trailing 4-quarter historical average.

 

Executive Summary

Commentary by Ryan Byrd | Principal

Houston’s Industrial market shows no signs of letting up even after a record high 2021 performance. With Q1 2022 leasing activity of 10 million square feet and net absorption of 5.6 million square feet, the market remains on pace to match or exceed 2021. Vacancy fell below 7%, to 6.5%, for the first time since 2019. Traditionally not known for significant rent growth, Houston has seen a 10-15% increase in market rents which we expect to continue through 2022.

On the capital markets side, institutional equity remains extremely strong, and competition among buyers appears to be steadily increasing. Capitalization rate compression (the gap between the Cap rate and the 10-yr Treasury rate) has been experienced across all submarkets as the demand for investment product has exceeded supply. Institutional equity is getting aggressive on properties with shorter weighted-average lease terms so they can realize new inflated lease rates sooner which provides a hedge against inflation. A primary driver of the record low cap rates on stabilized product is the yield on cost modeling approach these institutions are taking by incorporating expected higher rental rates at renewal/expiration.

We fully anticipate 2022 will be a strong growth year. Market activity and demand remain strong however there are a handful of factors to keep an eye on moving forward. Inflation is the highest it has been in 40 years and has hit construction materials especially hard. It is widely expected that the Federal Reserve will aggressively increase interest rates in the mid-term to attempt to slow inflation and borrowing costs will be substantially higher than we have experienced over the past decade. Increased construction pricing and record land prices will impact both developers with planned developments and users that prefer to own. Despite these higher delivery costs, there is approximately 18 million square feet under construction and even more in the planned construction pipeline.

Under Construction

Institutional Inventory - 450,000 SF or Greater
  Business Park/Address
  Submarket  RBA  % Leased/Owned  Est. Delivery Date Developer/Owner   
   Weiser Business Park
   Northwest Hwy 6  up to 1.5M  0%  Q2 2022  Trammell Crow Company  
   TGS Cedar Port DC 1
   East-Southeast Far 1,208,019  0%  Q2 2022 TGS Group  
   Empire West Business Park - B9
   Northwest Outliers
1,039,060
 0%
 Q2 2022
Stream Realty Partners LP
 
   NorthPoint 90 Logistics Center - B3    Northeast I-10    687,902     100%    Q3 2022   NorthPoint Development  
   Empire West Business Park - B4    Northwest Outliers   666,360   0%   Q2 2022    Stream Realty Partners LP  
   Prologis Presidents Park - B2   North Hardy Toll Road 629,186  100%  Q2 2022 Prologis, Inc.  
   The Uplands Twinwood Business Park 
   Sugar Land 546,000  0%  Q4 2022  Clay Development & Construction  
   TGS Cedar Port DC 2
   East-Southeast Far 496,421  0%  Q3 2022 TGS Group  
   HoustonTradeport Ph II, B1   Southeast Outer Loop 457,400 100%  Q3 2022 NorthPoint Development  

 

Construction Activity

Houston Industrial Construction
  2022_Q1_Industrial_Construction Activity

2022_Q1_Industrial_SearchResultImage_1024x972

Q1 2022 | Houston Industrial Market Report

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Related Experts

Lisa Bridges

Director of Market Research

Houston

Lisa joined Colliers in 2010 as Director of Market Research and has 37 years of commercial real estate experience. Lisa initiates proactive market research projects to further the business goals of the company. She writes and prepares 29 market reports annually, including quarterly reports on Houston's retail, office, industrial and healthcare properties.  Further, she prepares statistical ownership reports for various clients as well as an annual Houston Economic Overview. Lisa also creates PowerPoint market presentations, trade journal articles, and other marketing materials supporting the company's business endeavors. She works with senior management in planning the company's marketing strategy and public relations support for local and national conferences, luncheon meetings, recruitment programs, and special events.  Lisa works closely with the company's brokers to develop effective custom market research material specific to existing and potential clients.

Lisa serves on the Colliers Editorial Board, the Colliers U.S. Research Council, and is a recipient of the Colliers Researcher of the Year Award.

Lisa earned the Commercial Property Research Certification (CPRC) from Colliers University.  CPRC is the first and only accreditation for commercial real estate research professionals. It offers a professional development path to increase strategic and tactical expertise in marketing/research, knowledge of the industry and capabilities with commercial real estate tools.

View expert

Ryan Byrd

Principal & Director

Houston

Ryan Byrd joined Colliers in 2013 as an associate. In 2020, Ryan became the youngest Principal in company history. He specializes in land sales, acquisitions, and tenant/owner representation.

Since joining Colliers, Ryan has completed more than 37.7 million square feet in industrial transactions and more than 650 acres in land transactions.

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