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HOUSTON-Industrial occupancy in Houston has reached its lowest point in six years, and the market isn’t likely to rebound until early next year, according to a Q3 research report released by Houston’s O’Connor & Associates.

While many brokers reported increased activity in the second quarter, the indicators did not bear out in the final analysis. Occupancy dropped for the fifth straight quarter and is now down to 84.7%, Jeff Tobin, the firm’s market analyst, tells GlobeSt.com. He says he expected better results after interviewing several brokers. The research simply showed the industrial market definitely is not out of the woods yet.

Tobin says one obvious reason for the continued drop in occupancy is the new inventory. Last year, 3.6 million sf delivered and another three million sf came out of the ground this year. Tobin predicts construction will drop to two million sf in 2003, but only half will be in the form of speculative projects. At the Q3 close, there were 4,165 buildings totaling 221 million sf, excluding owner-occupied, research and development and mini-warehouse space.

Tobin says occupancy also took a hit from low interest rates, which have encouraged new construction, but at the same time lowered the rate since would-be renters have flocked to the owner-occupied market this year.

Overall rents remained flat, with the average standing at 38 cents per sf. Tobin says rent could start to drop as more new product comes on line. As it stands right now, Houston’s more building owners already are sweetening the pot with a few months’ free rent.

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