Q1 2023 Industrial Real Estate Report: Houston, TX
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Houston is known as a major component in the energy industry. It is also home to NASA's Johnson Space Center and boasts a vibrant culinary scene, offering a variety of cuisines from around the world.
Major industries in the city include healthcare, manufacturing, technology, logistics, and international trade, contributing to its status as a diverse and thriving economic powerhouse.
The population of Houston is 6.7 million, with a growth rate of 1.58%.
Despite national economic pressure, Houston's industrial real estate market performed well in Q1 2023 behind new construction, positive absorption, and stable vacancies.
General Area Overview & Demographics
Houston, the fourth-largest city in the United States, is a bustling metropolis located in the state of Texas. Known for its vibrant energy, diverse culture, and thriving economy, Houston attracts residents and visitors alike from around the world. The city offers a unique blend of southern charm, cosmopolitan attractions, and a range of opportunities in various industries.
Despite its renowned status, renters in Houston continue to struggle to keep up with rent payments.
The Houston, TX Economy, Geography, and Population
Geographically, Houston sprawls across an expansive area of approximately 655 square miles (1,700 square kilometers) in southeastern Texas. The city is situated near the Gulf of Mexico and is intersected by the winding Buffalo Bayou, providing scenic waterways and outdoor recreational opportunities. Houston is home to a variety of distinct neighborhoods, each with its own character and charm.
The city's demographics reflect its diversity, with a rich tapestry of racial and ethnic groups. Approximately 45% of residents identify as Hispanic or Latino, making up a significant portion of the population. African Americans make up around 23% of the population, while White (non-Hispanic) residents account for approximately 24%. Asian Americans and individuals from other ethnic backgrounds contribute to the remaining portion of Houston's population.
Houston is renowned for its robust economy and is home to a wide range of industries. The city serves as a global hub for the energy sector, particularly oil and gas, with many major energy companies headquartered in the area. Additionally, Houston has a strong presence in the healthcare, aerospace, manufacturing, finance, and technology sectors. The Texas Medical Center, located in Houston, is the largest medical complex in the world.
Summary of Houston Industrial Real Estate Performance in Q1 2023
During the first quarter of 2023, vacancy rates for Houston industrial real estate averaged 5.5%.
The Southwest Corridor had the highest average vacancy at 7.7%, while the South Corridor posted the lowest at 3.5%.
Net absorption totaled 4.3 million square feet in the quarter, indicating a decrease of approximately 2.3 million square feet compared to the previous quarter.
What are industrial real estate rents like in Houston?
Average asking lease rates for Houston industrial real estate stayed relatively flat, sitting at about $8.99 per square foot after Q4 2022 but remaining above Q3 2022's numbers.
Rents were highest in the Southeast Corridor, averaging $9.18 per square foot, while the Northeast Corridor had the lowest average rents at $6.29 per square foot.
Purchase & Leasing Activity
Sales volume in the Greater Houston area reached $156 million, a 90% decrease compared to Q1 2022.
New leasing activity was down by 33% in Q1 2023, with a total of 9.3 million square feet in lease transactions.
Notable Industrial Real Estate Deals in Houston in Q1 2023
Several notable deals took place in Houston's industrial real estate market:
- Igloo leased 524,000 square feet at Woods Road Business Park Building 1 in the Southwest submarket.
- Imperial Dade leased 293,000 square feet at Lone Star Logistics Park Phase 1 Building C in the Southwest submarket.
- Cadeco Industries leased 258,000 square feet at 1211 Kress Street in the CBD submarket.
- ABC/ACM leased 257,000 square feet at Cypress Preserve Logistics Center Building 1 in the North submarket.
These are select examples among other activity.
New Industrial Real Estate Development Activity in Houston in Q1 2023
New deliveries of industrial space totaled 6.8 million square feet in the quarter, with nearly half of this amount coming from the Southwest submarket.
There were 36.2 million square feet in the pipeline during Q1, representing a significant increase of nearly 13 million square feet compared to the figures from Q1 2022.
Market Forecast for Houston's Industrial Real Estate Market
Vacancy rates and absorption are expected to remain stable throughout the year. Construction figures are likely to decline as the year progresses due to shifting capital markets, and rental rates are projected to increase for the remainder of the year.
Takeaways for Industrial Real Estate Investors
Tenant demand for industrial properties in Houston remains strong. The large quantities of new deliveries scheduled for later in the year will help meet that demand, but the market is expected to maintain a healthy need for industrial space. Economic strains may pose challenges for investors as the year progresses, but Houston's industrial real estate market is projected to remain resilient.
Do your research, stay diligent, and happy investing.
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