Industrial Sector Sees Improvement

HOUSTON-As the economy slowly improves, so does the real estate market--at least as far as industrial properties are concerned. Highlighted in a recent report by Grubb & Ellis Co.'s Houston office, industrial vacancies were low during the third quarter despite new product coming online. YTD net absorption is 9.26 million sf, which included the four-million-sf deal between Wal-Mart and the state of Texas for a distribution facility in Chambers County. The overall vacancy rate is 6.3%, considered by most experts to be the lowest in a number of years.

Ariel D. Guerrero, Grubb & Ellis' client services manager for Texas, points out that while industrial seems to be strong more or less throughout the region, leasing velocity is what matters. "It's picked up within the past year and a half," he tells GlobeSt.com. The far Northwest sector, for example, has an overall vacancy rate of 6.2%. "It wasn't so long ago that vacancy in that particular are was somewhere around 11% to 12%," Guerrero notes. "This is at its lowest level in about four or five years."

Also of interest in the market has been the huge development in the Fort Bend and Southwest markets. Trammell Crow, in partnership with ING Clarion Partners' Lion Industrial Trust has just completed the 17-acre Stafford Park Business Center at Airport Boulevard and Murphy Road. Also notable, ProLogis recently completed construction on two spec developments in Sugar Land Corp Center totaling 261,000 sf. "During the past quarter, a lot of product came on line in that area, but not many tenants have absorbed that space yet," Guerrero says.

Even further east and southeast, he points out, spec is coming up as well. "A lot of developers are positioning themselves near the Port of Houston," he says. This is likely as the fallout from Hurricanes Rita and Katrina push more business west of New Orleans. Still, it's not to say that everything breaking ground is spec. "Overall, the majority of the new product coming on line has been build-to-suit and owner-occupied developments," Guerrero says.

Guerrero acknowledges he doesn't see much change for the fourth quarter. He does, however, believe that absorption in the overall market will likely exceed 10 million sf, with more transactions and construction likely to occur as industrial developers and investors poise themselves for anticipated growth. "The majority of the activity is picking up," he says. "Leasing is picking up, and the investor-user sell market is pretty hot, with not nearly as much product available for sale."