Vacancy Dips to Seven-Year Low

HOUSTON-Huge demands for industrial space and dwindling supply throughout the area have pushed the vacancy rate in the industrial market to its lowest level in seven years. In the latest market report, overall vacancy is 5.88% and dropping in the 389.6-million-sf inventory.

The latest report by Grubb & Ellis Co. shows the region absorbed 1.75 million sf in the first quarter. The average rent is now $4.62 per sf. On the vacancy barometer, the rate has dropped 1.16 points in a year and 0.19 points since the 2005 close. Seven years ago, it was 5.7%.

"There's been extremely high demand that's been driven by oil and gas service companies, and a lack of good available buildings, especially in the north-northwest Houston area to serve those companies," explains Tyndall Yaap, vice president of Grubb & Ellis' Houston office. "If you have a good quality metal or tilt-wall building, single-tenant, either for sale or lease, it's a slam dunk you'll find a taker." He adds that the size demand for product ranges from 10,000 sf to 200,000 sf.

As any economist knows, high demand and low supply lead to increased prices. Ariel Guerrero, Grubb & Ellis' client services manager in Houston, says that's just what is happening in the industrial market. "Within the past year, we've seen asking rents for manufacturing space increase by 54 cents to $3.50 per sf, triple net," he says.

Guerrero tells GlobeSt.com that most new space is rising on the east side near the port while developers elsewhere aren't rushing in to overflow the region with buildings right now. "We're seeing numerous smaller projects under construction between 15,000 to 30,000 sf and a lot of those are freestanding," he adds. "Last year, most of the construction was build-to-suit and owner-occupied." Near the port, though, there is 2.6 million sf under construction.

Yaap says the remainder of this quarter most likely will bring more insatiable demand combined with dwindling supply. "There's some construction, but not heavy construction," he says. "We'll likely see more build-to-suits. Developers are loving this time."

The report places R&D/flex space at 13% vacant. Brazoria County's 76% vacancy and northeast far sector's 100% seem alarming on paper, but Guerrero points out the figures are somewhat inflated. "There's a 500,000-sf facility out there in the Brazoria area that's been vacant for some time and currently being marketed," he says. As for the 100% vacancy in northeast far sector, he says it has "one, maybe two flex facilities in the market. When one is vacant it can really inflate the numbers."