Economic and Market Outlook: HOUSTON INDUSTRIAL | Q3 2016
HOUSTON | SAN ANTONIO | AUSTIN
Executive Summary Economy • Economic uncertainty associated with an unprecedented presidential election cycle will continue after new administration moves in due to ongoing discontent between parties. • U.S. energy sector has likely bottomed out; real signs of recovery have emerged over past the quarter, such as increases in rig counts. • Gross domestic product (GDP) is anticipated to be 1.4% for 2016 and 2.0% for 2017, both slower than 2.5% in 2015. • U.S. employment remains steady, posting 156,000 new jobs in September, after 167,000 in August. Job growth below 200,000 per month suggests tightening labor market. • Houston technically entered an economic recession in November 2015; while the bottom has likely passed, Houston is not yet recovering. Table 1. Key market indicators for Q3 2016, and their percent (%) change on a quarter-overquarter (QoQ) and year-over-year (YoY) basis.
Percent Change over Time Period
Market Variables
Q3 2016
QoQ (%)
YoY (%)
Net Absorption (sq. ft.)
6,890,715
1691.6 %
241.6 %
Leasing Activity
5,550,805
-3.6 %
-9.5 %
Availability (%)
9.4%
1.1 %
17.5 %
Vacancy (%)
5.5%
-5.2 %
14.6 %
Deliveries (RBA, sq. ft.)
6,593,114
151.7 %
86.0 %
Construction (RBA, sq. ft.)
7,495,046
-44.1 %
-45.7 %
573,475,775
1.0 %
2.4 %
18,634
0.2 %
0.8 %
Inventory (RBA) Inventory (No. Buildings)
• Houston’s economic outlook is to shift from a modestly negative stance to one that is generally flat for the remainder of 2016. Industrial Market • 6.8 million sq. ft. of net absorption in Q3 2016, representing large percent increases QoQ and YoY, but 4.0 million sq. ft. was accounted for by the Daikin Industries delivery. • Leasing activity of 5.5 million sq. ft. was within historic Q3 performance of all industrial products. • Availability at 9.4% was a 17.5% increase YoY; vacancy at 5.5% was a 14.6% increase YoY. • Vacancy for flex, manufacturing, and warehouse/ distribution space was 6.8%, 4.2%, and 5.7%, respectively. • The primary soft spot is availability of manufacturing space, which at 9.2% is significantly greater than its historic average of 4.7%. • With the Daikin delivery, RBA under construction is down to 7.5 million sq. ft., a decrease of 46% YoY.
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