Opportunities Aplenty for Houston Industrial Players
As the market fires on all cylinders, Houston is increasingly competing with other major US industrial markets for big-box distribution deals, which are aggressively being pursued by investors ready to turn dirt.
HOUSTON—The industrial market is firing on all cylinders as both landlords and tenants expand positions in the metro. Major occupiers continue to migrate into newer product, with eight of the top 11 deals transacting in new construction space, according to a third quarter report by JLL.
The North and Northwest submarkets again captured the lion’s share of tenant demand in the third quarter, landing 66.7% of total deal volume. The largest transactions included Conn’s for 656,658 square feet in the North and Goodman Manufacturing for 411,442 square feet in the Northwest.
Four quarters of robust construction activity came to fruition with 3.8 million square feet in deliveries, the largest supply infusion since the third quarter of 2016. Most projects have solid tenant commitments and deliveries were 67.7% preleased this quarter.
As some of the tenants have yet to take occupancy of new spaces, vacancy climbed 50 basis points to 5.4%. Availability climbed to 8.5% during the same period. While asking rents are up 0.9% quarter-over-quarter, rents have increased 4.9% in the last year, giving some tenants sticker shock upon entering the market. Despite a slight softening in occupancy this quarter, landlords are holding positions and concessions remain stable, given the long-term strength of the industrial sector in Houston.
With construction activity easing off the gas this quarter and leasing activity consistent during the course of 2018, the market looks to remain in balance in the period ahead. Houston is increasingly competing with other major US industrial markets for big-box distribution deals, which are aggressively being pursued by a growing field of investors ready to turn dirt. With further spec development poised to break ground before the end of the year, opportunities abound for Houston industrial players.
“After a quieter second quarter with regards to leasing activity, Houston’s industrial market bounced back in a big way across all submarkets in the third quarter,” David Buescher, vice president with JLL’s industrial services group, tells GlobeSt.com. “Much of the leasing activity took place in first generation product, mainly because there isn’t enough second generation product to meet demand in the market. We expect leasing momentum to continue in the fourth quarter and suspect strong fundamentals will fuel more development activity.”