As labor issues and other industrial woes continue to plague the West Coast of the United States, ports in Southeast Texas continue to see record-breaking activity as shipping shifts away from the volatile American west and towards the Gulf.
Houston’s industrial warehouse market is starting to respond to these developments and improve upon Q2 2022’s activity with rising lease rates, increased leasing activity, and the delivery of more finalized warehouse development projects. While year-over-year vacancies have ticked up slightly, the market is in good foreseeable shape.
Houston is the most populous city in Texas, with a population of about 2.3 million people and covers an area of 1,600 square miles. The Houston metropolitan area is the country’s third-largest by population.
It has the second-largest gross domestic product (GDP) among U.S. metropolitan areas and serves as a global hub for oil, gas, petrochemicals, and high-technology industries.
The Port of Houston ranks first in international commerce for foreign tonnage handled, second in total cargo volume at 992 million tons annually (according to World Trade Atlas), and fifth among ports worldwide when measured by cargo value at $172 billion per year.
The average household income in Houston, TX is about $53k annually. The city hosts nearly 880,000 households and is dominantly African American (22.8%), Latino (44.5%), and White (51%).
The average cost per square foot to rent warehouse space in Houston, TX was about $9.00 for NNN leases in Q3 2022, up from about $8.25 per square foot in Q2 2022. This is the third quarter of consecutive rent growth for industrial space in Houston in 2022 so far.
In Houston’s Southwest Inner Loop submarket, industrial rents were as high as $19 per square foot in Q3 2022.
In Q3 2022, vacancy ticked up slightly to about 5.9% above Q2’s vacancy rate of about 5.7%. However, this is still below Q1’s vacancy rate of about 6%. This increase in vacancy is largely due to the delivery of new warehouse projects to the Houston area, totaling almost 10 million square feet.
Note that some submarkets of Houston saw vacancy rates on both sides of this average: The Central Business District of the Inner Loop saw its vacancy rate fall below 3%, while some areas of the Northwest Corridor saw vacancy rates as high as 18%.
Leasing velocity in Houston continued on its record-breaking path, clearing 11 million square feet in Q3 2022. This is up from Q2’s 10 million square feet.
This rise in leasing velocity continues to encourage new industrial project developments in the area: Over 25 million square feet of new industrial projects went underway in Houston in Q3, with an additional 60+ million proposed.
Approximately 5.5 million square feet of positive net absorption occurred in Houston’s industrial market in Q3 2022. This is slightly down from Q2’s 6.5 million, as indicated by Houston’s industrial sector’s rising vacancy rate.
Nevertheless, industrial absorption in Houston remains steady, with only the Southwest Outer Loop sector of Houston seeing negative industrial net absorption in Q3 2022.
All three quarters of 2022 have seen significant increases in rental rates for Houston’s industrial sector:
The significant jump in rent from Q2 to Q3 can be largely explained by the shift in shipping from the American west to the Gulf as the Port of Houston expands its grip on the global economy.
Among those to participate in Houston’s increased Q3 leasing velocity include:
These are among some of many notable industrial leases that took place in Houston in Q3 2022.
Nearly 20% of the 25 million square feet of industrial projects currently underway in Houston have been pre-leased. The Southeast submarket of Houston is currently seeing the most industrial development activity, with the Northeast submarket seeing the least.
The industrial market in Houston is already showing minor signs of a slowdown despite the steady activity. We anticipate that fewer industrial projects will be delivered as we progress into 2023 and that vacancy rates will continue to rise as new projects are finished.
Do your research, stay diligent, and happy investing.
All figures presented in this article are based on MyEListing.com’s commercial real estate listing data in corroboration with other freely available data and information covering the commercial real estate industry.
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