The second quarter of ’21 saw a return to more “normal”
absorption numbers after a sluggish Q1 and suggests we will see vacancy
rates start to recover by Q4 or early ’22. Momentum in the
industrial sector remains strong overall
Patrick Duffy | President
Key Takeaways
- Tour activity robust
- Leasing activity increases, up 30% from Q1
- Absorption increases and remains positive
- Vacancy drops 10 basis points
- Construction activity increases slightly over the quarter, but
down on an annual basis
Houston Highlights
Houston’s Industrial market continues to gain momentum as leasing velocity reaches almost 12 million square feet, up 30% from Q1 2021. Notable leases include Wolseley’s lease of 750K SF at Empire West, Living Spaces’ lease of 685K SF at Air 59 Logistics Center, Webstaurant’s lease of 645K SF at Cedar Port Logistics, Goodman’s lease of 494K SF at Sam Houston Distribution Center and FedEx’s lease of 535K SF at Park 505. With consumer confidence approaching pre-pandemic levels, we expect to see strong leasing activity for the near-term.
Executive Summary
Commentary by Zachary Taylor | Senior Vice President
Strong leasing activity in Q2 mirrors a more optimistic outlook on the economy and overall recovery from the COVID crisis. Governor Abbot issued an Executive Order in March removing all COVID-related operating limits on businesses. In addition, President Biden issued a third economic stimulus package in March that has pumped more money into the economy. We are now at a point where retail spending has surpassed pre-COVID levels. E-commerce, automobile sales and building materials have been the biggest beneficiaries of consumer spending—all five of the largest leases signed in Q2 fall into one of these three categories.
The COVID crisis disrupted the supply chain, but the surge in retail spending has compounded the problem. Container ports all over the country are experiencing increased volumes of TEU’s leading to longer wait times and surging shipping costs. According to Sea-Intelligence ApS, only 40% of container ships were on time arriving at ports with average delays stretching to more than six days. The cost of moving a 40 foot container from China to the U.S. West Coast ports averaged over $5,500 in Q2 according to the Freightos Baltic Index, up 34% since the start of the year and 228% higher than the same period last year. Container activity at the Port of Houston jumped 25% in April, 30% in May and 39% in June.
The increase in construction pricing has caused several new speculative development projects to be put on hold. This temporary pause in new construction combined with solid leasing activity should lead to lower vacancy rates toward the end of the year and into Q1 2022. In addition, cap rate compression continues to gain momentum as institutional investors seek to capitalize on growth in warehousing and e-commerce. Overall, Houston continues to show strong market fundamentals and is poised to produce strong numbers through the end of the year.
Under Construction
Institutional Inventory - 250,000 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% | Q1 2022 | Trammell Crow Company | |||||||||
| The Uplands Twinwood DC 1 |
Sugar Land | 737,630 | 0% | Q3 2021 | Clay Development | |||||||||
| Weatherford Farms - B 2 |
Hwy 59/Hwy 90 | 568,084 | 0% | Q3 2021 | Crow Holdings Industrial | |||||||||
| 59 Logistics Center |
Northeast Hwy 90 | 509,600 | 0% | Q3 2021 | Hunt Midwest | |||||||||
| Jordan Ranch Distribution Center |
Sugar Land | 498,231 | 100% | Q3 2021 | Phelan Development Company | |||||||||
| Fairway North Logistics Park |
North Hardy Toll Road | 392,480 | 0% | Q1 2022 | Lovett Commercial | |||||||||
| Nova Logistics Park |
Sugar Land | 326,812 | 50% | Q3 2021 | Lovett Commercial | |||||||||
| Houston Coldport |
Northeast I-10 | 315,101 | 0% | Q1 2022 | Boomerang Interests LLC | |||||||||
| South Belt Central Business Park |
South Hwy 35 | 305,016 | 0% | Q2 2021 | Investment & Development Ventures LLC | |||||||||
| Seton Lake Logistics Center |
Hwy 290/Tomball Pky |
255,704 | 0% | Q3 2021 | Trammell Crow Company | |||||||||
Construction Activity
Houston Industrial Construction
