2016 q3 hou industrial print

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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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