Industrial Market Continues Downslide

Overall vacancy for the city's 377 million sf of industrial space is 10.74%. Mike Taetz, principal/director at Collier's, tells GlobeSt.com that this number is the average of several extremes in the submarkets. In the northwest, the US Highway 290/Tomball Parkway submarket, which houses nearly 9 million sf, has the highest vacancy rate in the city with 23%. The northwest corridor overall, which consists of six submarkets and the largest inventory with over 101 million sf, has the highest vacancy rate of any quadrant in the city at 13.79%.

By contrast, the southwest corridor with four submarkets totaling nearly 50 million sf of industrial space has a vacancy rate a little over 9%. Also, many other southwestern submarkets are posting vacancies under 6% like the southwest outer loop submarket with over 14 million sf and a 5.96% vacancy rate.

The report calls for a slow and steady recovery, a conclusion Taetz agrees with. He adds that Houston's economy has become much more connected to national economic trends in recent years and expects Houston to recover as the nation does.

Taetz predicts that a lot of the empty space will be filled with the "homegrown businesses" he says Houston is famous for. Additionally, he believes that other existing businesses will expand into the space. The city has a lot of space to fill, however; Collier's reports that so far this year the industrial market has had negative absorption of nearly 3.5 million sf.

If the entrepreneurial spirit is Taetz's bet for filling the space, he says rental concessions and discounts aren't going to solve the problem. Right now, he adds, some owners are offering moderate free rent, but he doesn't expect rents to drop. Taetz says owners are not panicked by the current situation, and believe a recovery will come in the short term.

The report says rental rates have remained stable over the last few quarters with overall rental rates currently at 65 cents per sf for flex/service center space, 34 cents per sf for manufacturing facilities and 44 cents per sf for warehouse/truck terminal space.

One bright note in the industrial market, says Taetz, is the brisk industrial sales business. He confirms that the current trend of investors pouring money into real estate in lieu of the stock market has penetrated the industrial market. The Colliers report estimates that the median price for industrial product in Houston is currently about $36 per sf.