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Q4 2021 | Houston Industrial Market Report

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2021_Q4_Industrial_Skyline_1536x1040

 

Despite adding approximately 25 million square feet of new
industrial space in 2021, the market took it in stride and
managed to absorb a record 28.5 million feet and drive
the vacancy rate down to 7.1%.
 Demand for industrial
space shows no signs of letting up in 2022 and we expect
another strong year for this sector, both in
Houston and nationwide.
Patrick Duffy | President of Colliers in Houston

Key Takeaways

  • Robust investment activity
  • Historical positive net absorption recorded
  • Leasing velocity gained momentum, reaches historical high
  • Vacancy rate drops on a quarterly and annual basis
  • Port Houston sets records
2021_Q4_Industrial_Vacancy Rate   2021_Q4_Industrial_Net Asbsorption 
     
 2021_Q4_Industrial_Under Construction    2021_Q4_Industrial_Lease Rates

 

Houston Highlights

Houston’s Industrial market continued to gain momentum as leasing velocity reached 9.0 million square feet in the fourth quarter, pushing the year-end volume to a historical record of 44.5 million square feet. The increase in demand for space continued to spur new development with over 16.6 million square feet under construction and an additional 51.1 million square feet proposed or in the final planning stage. Houston’s industrial market recorded 9.6 million square feet of absorption in the fourth quarter, bringing the year-end total to a historical high of 28.5 million square feet of positive absorption. The vacancy rate decreased 140 basis points annually from 8.5% in Q4 2020 to 7.1% in Q4 2021.

Market Highlights

2021_Q4_Industrial_Market Indicators 

Historic Comparison

2021_Q4_Industrial_Historic Comparison 

 

Market Fundamentals

2021_Q4_Industrial_Market Fundamentals 

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

 

Executive Summary

Commentary by Robert L. Alinger | Principal & Director

2021 was a banner year for Houston Industrial real estate. A number of factors contributed to record setting deliveries and absorption. Among those are historically low interest rates, increased port activity, e-commerce expansion, increased capital investment in U.S. CRE, and continued pent-up consumer demand due to COVID-19. Each element contributed to what was a perfect storm, which allowed the Houston market to absorb over 28,500,000 SF, where a typical year has recorded approximately 12MM to 15MM SF. This level of growth was achieved despite labor and material shortage obstacles.

Port Houston (PH)
Houston’s port has seen its busiest year ever. In November, the port surpassed its previous high-water mark of 3,001,164 TEUs by nearly 16%. Full year estimates are in excess of 3,400,000 TEUs. Material shortages, increased consumer demand, and labor shortages in other port markets are all contributing factors to the record PH growth. Developers continue to seek viable land positions in Houston’s east and southeast submarkets to service this ever expanding port activity. 

E-Commerce
The COVID-19 pandemic and low interest rates continue to fuel the massive e-commerce growth. Amazon and Wal-Mart have continued the rapid expansion of their distribution networks in the Houston MSA and across the U.S., with other competitors following suit to claim their piece of the pie. Same-day delivery and direct to consumer fulfillment needs are fueling the rapid increase in distribution space occupied by retailers. 2021 retail sales are estimated at roughly $4.5 trillion. Within that total is e-commerce (non-store) sales, which have grown nearly 20% to a range of $1.09 - $1.13 trillion. Developers continue to deliver new product in an attempt to meet this demand.

Capital Markets
Dry Powder has continued to flow into the U.S. real estate market. Cap rates for core product in the Houston area have now breached the high 3’s. Forwards have sold at a feverish pace with investors looking to capitalize on rent growth, low interest rates and record absorption. In certain circumstances, investors will pay more for a project with some vacancy, as their rent growth projections far exceed the current market rate. This narrative is well supported in other markets (Austin, L.A., Phoenix, Chicago, etc.), but Houston has not and will not see those vast annual increases. The rent growth recorded in Houston is noticeable, but albeit subdued (5-8%), and is largely due to increased material costs, not under supply. Houston is unique in that it has few geographic constraints and even fewer political constraints when entitling new developments. Developers can have a building constructed in as little as 14 months following the land purchase. Less than double digit rent growth and impending Fed rate hikes will not, however, prevent the continued investment. Rate hikes will temper cap rate compression, but CRE investment remains an effective hedge against inflation. Looking ahead, 2022 will be another strong 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%  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
   Northeast Outliers
1,039,060
 0%
 Q2 2022
Stream Realty Partners LP
 
   Cedar Port Logistics Center - B1    East-Southeast Far    799,680     100%     Q1 2022   Capital Development Partners   
   NorthPoint 90 Logistics Center - B3    Northeast I-10   687,902   100%   Q3 2022    NorthPoint Development   
  Empire West Business Park - B4   Southwest Far 666,360  0%  Q2 2022 Stream Realty Partners LP  
  Prologis Presidents Park - B2
   North Hardy Toll Road 629,186  100%  Q2 2022 Prologis, Inc.  
  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
  2021_Q4_Industrial_Construction Activity

2021_Q4_Industrial_SearchResultImage_1024x972

Q4 2021 | 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.

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Robert Alinger

Principal & Director

Houston

Robert Alinger specializes in the leasing, disposition, acquisition, and site selection of industrial land, industrial, and distribution properties in Houston and the greater gulf coast region. His expertise with site entitlements, new development, and project leasing has established his reputation as a leading service provider to the industrial development community. Robert also has a unique understanding of rail served properties. In the last five years he has completed the sale of 1,800 acres of rail served land and the leasing and disposition of 3.5M square feet of rail served buildings.

Mr. Alinger joined Colliers in 2019, was named Principal in 2020, and elected to the Board of Directors in 2021. In his first three years with Colliers, he completed more than $500 million in transactions and was the 2021 Top Producer in the Houston office during the companies highest grossing year. Since 2016, Robert represented National Property Holdings, a Houston based Industrial Development Firm, in the acquisition of 20 tracts of land, totaling more than 1,550 acres. He facilitated the development and leasing of these business parks, and currently represents their growing portfolio of more than 8.5M square feet of Class A industrial space.

Mr. Alinger is a native Texan and was born in Houston. He began his real estate career in 2006 after graduating from the University of Houston with a Bachelor of Science in Construction Management.

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