Supply might be outpacing demand for industrial product in Texas — but vacancy remains low despite some pressure, according to a first-quarter market report from CBRE.
Deliveries totaled 16.1 million square feet, well above the net absorption of 9.5 million square feet. Supply outpaced demand in the Houston, Austin and Dallas/Fort Worth markets. On a year-over-year basis, though, net absorption nearly doubled, as leasing and renewal activity was "sluggish," according to CBRE.
The spike in deliveries is coming from a surge in construction that dates back to 2021. That put pressure on vacancy in the first quarter, increasing the rate by 80 basis points year-over-year to 9.5 percent. However, the result isn't as troubling as it looks, as tenant demand remains strong, despite about 70 percent of the new space that hit the market in the first quarter remaining vacant.
"Vacancy in existing buildings remains comparatively low, suggesting that much of the recent softness in the market stems from the rapid pace of new supply rather than a significant drop in tenant demand," CBRE explained.
Additionally, rental rates softened for the most part across Texas' industrial sector. This was especially the case over the year-1 taking category, which plummeted by 6.8 percent. But larger product showed resiliency, with leases exceeding 800,000 square feet showing a 15.1 percent increase in the year-1 taking category.
On a positive note, construction is starting to slow. Starts dropped by 4.6 million square feet from the end of 2025 to 12.6 million square feet. Austin and El Paso were the only industrial regions in the Lone Star State to see increases in product underway.
"The Dallas/Fort Worth market had the largest quarter-over-quarter decrease, dropping 6.1 million sq. ft. in Q1 20," CBRE wrote in an analysis of the construction trends.
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