Q2 2018 | Houston Industrial | Research & Forecast Report

Houston industrial tenants move to new space, increasing vacancy in older inventory

E-commerce continues to expand, helping to grow Houston’s industrial inventory. More than 12.3 million SF of industrial space is currently under construction, much of that in the form of distribution and logistics facilities. Liberty Property Trust is developing a 727,600-SF distribution warehouse located at 14803 Woodham Drive in the North Hardy Toll Rd submarket for Grocers Supply and a 550,000-SF distribution center is under construction at 636 Highway 90 in the Hwy 59/Hwy 90 submarket for Best Buy, just to name a few.

In general, the negative absorption as a percentage of the 560 million SF of existing industrial inventory is a small number, but we do keep an eye on vacancies as they arise. The vacancies created during the quarter of 2018 resulted from tenants who left older functionally obsolete buildings in a “flight to quality” for newer, state of the art buildings in different submarkets, or a couple of smaller 60,000 – 80,000 SF tenants that closed operations due to corporate M&A activity, or due to other restructuring. The strength of the market overall, including the balance of new deliveries in submarkets around the city indicate that the overall industrial market is healthy.

According to the U.S. Bureau of Labor Statistics, the Houston MSA created 79,200 jobs (not seasonally adjusted) between May 2017 and May 2018, an annual growth rate of 2.6%, which is above the national average job growth rate of 1.6%. The largest gains by sector include manufacturing, construction and employment services. 

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