Tenants and Investors Rev Up Industrial Takedowns

HOUSTON—The Houston industrial market took a breather at midyear, recording negative absorption for only the second time in eight years. According to JLL research, the Northeast industrial submarket has an availability rate of just 6.6%. Second quarter leasing activity was relatively low due to this limited availability.

It is not unusual for the market to experience wide swings in absorption quarter-to-quarter. This has occurred in each of the last five quarters. With the first quarter of 2018 totaling a substantial 2.9 million square feet absorbed, this one-quarter negative blip is not a point of concern. Following occupancy losses and new deliveries, vacancy and availability both inched up at midyear but still remain in line with

long-term averages.

“The industrial market in Houston remains strong, both from the perspective of tenant demand and institutional investment,” Ryan Fuselier of JLL tells GlobeSt.com. “Increased demand is being driven by job and population growth, as well as a stabilizing oil and gas sector and related industries.”

Construction activity grew for the fourth consecutive quarter and is up 80.5% year-over-year as Houston records consistent tenant demand. The six largest projects underway are all in excess of half a million square feet in size and together comprise a third of the construction total. Fully 76.8% of the pipeline broke ground speculatively, fueled by consumer goods demand, petrochemicals and related industries.

Occupiers in the market for space continue to opt for newer product, with four of the five largest leases signed transacting in buildings built in 2016 or later. In the largest deal of the quarter, Grocers Supply inked 727,600 square feet for a build-to-suit in the North submarket, according to JLL’s second quarter research report.

In another large lease, Houston-based Global Stainless Supply recently renewed its 210,850-square-foot full-building lease at Railwood Industrial Park at 8900 Railwood Dr. in Houston’s Northeast industrial submarket. In addition to its Houston headquarters, the company has operations in Los Angeles and Atlanta.

JLL’s Fuselier and Jeff Venghaus negotiated the terms of the renewal on behalf of the tenant. Kelly Landwermeyer of Holt Lunsford represented the landlord, CenterPoint Properties, in the transaction.

“GSS has operated out of this location for 10 years,” said Fuselier. “The overall location and specific features of this building continue to be the right fit for their company, customers and employees.”

The building in Railwood Industrial Park is a class-A industrial warehouse building. It was built in 2008 and has approximately 8,000 square feet of office space, 24 dock-high doors, 28-foot clear height and ample outside storage.

Despite this quarter’s pause in occupancy gains, the overall industrial sector outlook is strong, with healthy leasing activity and rising rents. Tenants are confidently executing long-term commitments for space and landlords are optimistic, given the volume of spec construction underway.

The future demand pipeline shows upcoming activity will continue to be fueled by retail- and consumer-focused industries. With 11.8 million square feet of occupiers in the market for space, Houston industrial is poised for further growth. Specifically, the Northeast is likely to have increased industrial activity as a result of three buildings totaling 320,000 square feet currently under construction in the submarket, says JLL research.