15th straight year of positive net absorption for Houston Industrial market


EXECUTIVE SUMMARY

Q3 in Review
Houston’s industrial market performed well over the past quarter, with demand increasing, and vacancy dipping to 7.0%. Looking ahead there has been some moderate slowing on the leasing activity front and the construction pipeline continues to contract, down 36% from last year. Still, the market continued its 15-year streak of positive net absorption, signaling resilient demand, especially in the Warehouse/Distribution segment, which continues to dominate leasing activity. Average asking rates held steady at a record-high $0.79 per sq. ft., further underscoring the market’s ongoing strength in the face of reduced construction deliveries and slowing leasing momentum.

Houston Economic Update
Houston’s labor market rebounded in August, but the unemployment rate ticked up to 4.5%. Over the past three months, employment in Houston grew an annualized 1.3% or 11,174 jobs. After two weak months of payroll data in June and July, August growth was very strong. From July to August, employment grew 10.3% annualized. This is likely the result of a rebound in activity after Hurricane Beryl and deferred hiring. Job gains in the last three months were concentrated in trade, transportation and utilities, construction, and financial activities. Trade, transportation and utilities – the largest sector of Houston’s labor market – grew an annualized 2.8% (up 4,886 jobs) from May to August. Construction had the strongest growth, expanding 11.1% (6,286 jobs) on an annualized basis over the same period. Growth in construction was broad based across subsectors but particularly strong among specialty trade contractors. Employment in financial activities grew an annualized 5.4% (2,440 jobs) from May to August. Leisure and hospitality were a drag on growth, contracting an annualized 2.5% (down 2,274 jobs).

Over the past year, Houston’s labor market is balanced and growing near trend. Employment grew 1.8% between August 2023 and August 2024. Mining and construction saw the strongest year-over-year growth. Anemic growth in professional and business services and a slight contraction in financial activities weighed on the metro area’s overall performance.


MARKET OVERVIEW

Leasing Down 17% Year-Over-Year
Quarterly leasing velocity—comprised of new leases and renewals—stood at 8.7 million sq. ft.—down 17% from 10.5 million sq. ft. in Q3 2024. Year-to-date, leasing activity is at 27.4 million sq. ft., compared to the prior year-to-date figure of 31 million sq. ft. Recent leasing activity has been highly concentrated in Warehouse/Distribution properties, which have accounted for about 90% of the total leasing activity over the past year. Flex activity has been largely flat, while manufacturing properties have seen a moderate decline over the same period.

Positive Net Absorption Up for the Quarter, but Still Slower than Last Year
Net absorption—move-ins minus move-outs—is at 6 million sq. ft. for the quarter, 15% down from the prior year’s 6.8 million sq. ft. Despite the decrease, net absorption in Houston’s industrial market has remained positive for 15 years—or 60 consecutive quarters—dating back to mid-2009. Notable recent move-ins include BroadRange Logistics taking 1,224,498 sq. ft. at NorthPort Logistics Center in Conroe; Gulf Coast Crating taking 432,316 sq. ft. at the Portside Logistics Park in Baytown; and eFulfill taking 368,099 sq. ft. at Post Oak Logistics Park.

Vacancy Rate Decreases to 7.0%
The overall vacancy rate in Houston’s industrial market is at 7.0%. Quarter-over-quarter, the vacancy rate decreased 70 basis points from 7.7%. Year-over-year, the vacancy rate increased 40 basis points from 6.6%. Flex, Manufacturing, and Warehouse/Distribution space had vacancy rates of 8.8%, 2.5%, and 7.6%, respectively.

Construction Pipeline and Deliveries both Down Significantly Over Past Year
The under-construction pipeline currently stands at 15.3 million sq. ft., this is down 36% from Q3 of 2023. Construction deliveries are down even more drastically, with 2.8 million sq. ft. completed for the quarter in comparison to 11.8 million sq. ft. that was delivered in Q3 2023.

Investment Sales Trends
Over the past year, sales for industrial properties have been trending higher with 622 Industrial and Flex properties being sold for a total sales volume of $638 million. The average transaction price was $115 per sq. ft. and the average cap rate was 8.0%. Notable recent sales transactions include Blackstone selling two industrial properties totaling 996,482 sq. ft. at the Cedar Port Distribution Park to MDH Partners. Both properties were occupied by IKEA at the time of the sale. Also, Invesco sold the two building, 561,955-sq.-ft. portfolio at the Bayport North Industrial Park. The portfolio was 100% leased by Kuraray America.

Record-High Rental Rate
The average monthly rental rate (NNN) for Houston’s industrial market remained unchanged at $0.79 per sq. ft.—a record-high for the metro’s industrial sector—up 5.3% from the previous year’s $0.75 per sq. ft. The average monthly rate per square foot for Flex space stood at $0.92 per sq. ft., while the rates for Manufacturing space and Warehouse/Distribution space were $0.77 per sq. ft. and $0.76 per sq. ft., respectively. The Southwest submarket commands the highest overall monthly average rate at $0.86 per sq. ft., followed by the Northeast and North submarkets at $0.83 per sq. ft. and $0.80 per sq. ft., respectively.


Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]

Deal Spotlight

Partners’ Travis Land and Braedon Emde represented the landlord and arranged a 47,736-sq.-ft. industrial lease with Helix Energy Solutions Group located at 3012 Venergy Drive in Brookshire, Texas.

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