Over the past few years, downturns in the oil business and petroleum-related industries have affected most of Houston’s commercial real estate market. However, the industrial sector has continued to thrive, performing well so far in 2017. Even Hurricane Harvey did little to slow the sector’s growth. Some believe that Harvey may have even helped the sector.
At a recent Hurricane Harvey Construction & Development summit, Duke Realty Senior Vice President David Hudson told everyone that the hurricane holds silver linings for the industrial sector. Hudson said, “It’s sad to say, but Harvey really supercharged our absorptions. It probably will stay that way for a couple years.”
A Mix of Industrial Tenants
Q1 2017 saw a number of large industrial leases being signed. Although the middle of the year saw industrial real estate sag slightly, good growth has occurred throughout the year. According to Trammell Crow principal Jeremy Garner, almost half the absorption in industrial real estate in 2017 happened in the third quarter – 3 million SF of Houston’s industrial inventory was absorbed in Q3 2017 alone. The total absorption so far in 2017 is 6.2 million SF.
Many of these leases were absorbed by the Port of Houston. In addition, a mix of tenants are behind some of the deals including a global automotive brand, third-party logistics companies, retailers and companies related the energy and petrochemical industries. One of these new industrial leases was signed by Israeli plastics manufacturer Starplast for an 181,540-square-foot industrial space at the Point North Cargo Park near George Bush Intercontinental Airport’s cargo area.
Houston’s Top 10 Industrial Leases (so far)
Overall, Houston’s 10 biggest industrial leases total almost 4 million square feet of leased space. Below are Houston’s top 10 industrial leases of 2017 so far:
- Esmer Tile – 600,000 SF, Pinto Business Park (Q3 2017)
- Vinmar International – 500,000 SF (build-to-suit pre-lease), Cedar Port Industrial Park (Q2 2017)
- MRC Global – 489,272 SF, Port Crossing Commerce Center (Q2 2017)
- Kuraray America, Inc. – 465,851 SF, Bayport Logistics Park (Q2 2017)
- Bel Furniture – 340,000 SF, West Ten Distribution Center (Q2 2017)
- Gulf Winds International – 303.281 SF, Greens Port Industrial Park (Q1 2017)
- Home Depot – 296,839 SF, Prologis Park Jersey Village (Q1 2017)
- Ford Motor Co – renewal of 250,000 SF, Alamo Commerce (Q1 2017)
- MEI Rigging and Crating – 227,000 SF, 6501 Navigation (Q1 2017)
- Supply Chain Management’s lease of 225,000 SF, Bayport North Distribution Center (Q3 2017)
Vacancy Rates and Absorption
So far in 2017, vacancy rates have dropped and net absorption has risen. Unlike some other commercial sectors, Houston’s industrial sector has seen growth where others have fallen off. In the third quarter, vacancy fell 20 basis points to 4.9%, dropping below the 5% mark. Also, availability reached 8.9%. As stated above, Q3 net absorption was 3 million SF. Also, occupier demand rose to 2.5 million SF.
In addition to the factors listed above, demand from distribution users and growth in the oil industry have also affected the absorption rate. However, the construction pipeline’s six-quarter decline continues, offering little relief to tenants on the supply side. Furthermore, JLL research shows the average asking price for rent in Houston’s industrial sector is $6.17 per square foot triple net.