Houston Industrial Market Maintains Stability Amid Slower Leasing and Declining Construction Pipeline


EXECUTIVE SUMMARY

Q3 in Review
Houston’s industrial market demonstrated resilience in Q4 2024, with positive net absorption, steady vacancy improvements, and sustained investment sales, despite a decline in leasing activity and construction deliveries. Quarterly leasing velocity dropped by 20% to 7 million sq. ft., with warehouse/distribution properties accounting for 90% of leasing activity over the past year. Flex space remained stable, while manufacturing properties experienced moderate leasing declines. Net absorption reached 3.2 million sq. ft. for the quarter, continuing a 61-quarter streak of positive absorption dating back to 2009, led by notable move-ins such as US Elogistics and Keen Transport.

The market’s overall vacancy rate decreased to 6.7%, driven by balanced demand and constrained new supply. While the construction pipeline shrank by 29% year-over-year to 13.4 million sq. ft., and quarterly deliveries dropped by 66% to 2.4 million sq. ft., rental rates held steady at $0.79 per sq. ft., marking a 2.6% increase year-over-year. Investment activity remained robust, with $724 million in total sales volume for 719 properties and an average cap rate of 7.9%. Notable transactions included the Scout Cold Logistics sale and Fairway North Logistics Park acquisition, underscoring strong investor confidence. Houston’s industrial market continues to exhibit stability, supported by healthy leasing, low vacancy rates, and robust capital flows.

Houston Economic Update
The Houston unemployment rate ticked up to 4.6% in October from 4.4% in September where it had been holding steady for three months. A year prior, the Houston unemployment rate was 4.1%. Houston’s labor force grew an annualized 0.5% in October, which was a significant slowdown. From January through September, the average monthly labor force growth rate was 3.3%.

Houston dropped 5,164 jobs in October, but there were upward revisions to alreadystrong payroll growth in August and September that kept recent job growth strong. For the three months ending in October, employment in Houston grew an annualized 4.1%, with 34,488 jobs added. Year over year in October, Houston’s labor market grew below trend, with employment expanding 1.2%. Oil and gas grew the most, with year-over-year gains of 8.5%. Larger sectors such as trade, transportation and utilities and professional and business services grew modestly, at 1.8% and 0.1%, respectively.


MARKET OVERVIEW

Leasing Down 20% Over Past Quarter
Quarterly leasing velocity—comprised of new leases and renewals—stood at 7 million sq. ft.—down 20% from the 8.7 million sq. ft. in Q3 2024. 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 time period.

Positive Net Absorption Outpaces New Deliveries for the Quarter
Net absorption—move-ins minus moveouts— is at 3.2 million sq. ft. for the quarter, down from last quarter’s 6 million sq. ft. Despite the decrease, net absorption in Houston’s industrial market has remained positive for over 15 years—or 61 consecutive quarters—dating back to mid-2009. Notable recent move-ins include US Elogistics taking 302,825 sq. ft. at the Constellation Post Oak business park, Keen Transport taking 160,720 sq. ft. at Beltway 35 Business Park and Special Cargo taking 149,500 sq. ft. at the Century Distribution Center.

Vacancy Rate Decreases to 6.7%
The overall vacancy rate in Houston’s industrial market is at 6.7%. Quarter-overquarter, the vacancy rate decreased 30 basis points from 7.0%. Year-over-year, the vacancy rate decreased 10 basis points from 6.8%. Flex, Manufacturing, and Warehouse/ Distribution space had vacancy rates of 8.6%, 2.3%, and 7.2%, respectively.

Construction Pipeline Down 29% and Deliveries both Down 66% Over Past Year
The under construction pipeline currently stands at 13.4 million sq. ft., this is down 29% from Q4 of 2024. Construction deliveries are down even more drastically, with 2.4 million sq. ft. completed for the quarter in comparison to 7.2 million sq. ft. that was delivered in Q4 2023.

Investment Sales Trends
Over the past year, sales for industrial properties have been trending higher with 719 Industrial and Flex properties being sold for a total sales volume of $724 million. The average transaction price was $115 per sq. ft. and the average cap rate was 7.9%. Notable recent sales transactions include Scout Cold Logistics sold a 248,240-sq. ft., single-tenant Refrigeration/Cold Storage facility located at the Bayport South Business Park. The property was 100% leased at the time of the sale. Also, Lovett Industrial sold the Fairway North Logistics Park, totaling 741,416-sq. ft. to Kohlberg Kravis Roberts. Built in 2021 and 2022, the Fairway North Logistics Park features 2 warehouse facilities and 1 distribution facility. The multi-tenant park is home to tenants such as Meiborg, RYCO Hydraulics, and Modern Chemical.

Rates Flat for Quarter, Up 2.6% Over Past Year
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 2.6% from the previous year’s $0.77 per sq. ft. The average monthly rate per square foot for Flex space stood at $0.93 per sq. ft., while the rates for Manufacturing space and Warehouse/Distribution space were $0.73 per sq. ft. and $0.77 per sq. ft., respectively. The Southwest submarket commands the highest overall monthly average rate at $0.89 per sq. ft., followed by the Northeast and North submarkets at $0.838 per sq. ft. and $0.83 per sq. ft., respectively.


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