3Q'14 NAI Houston Industrial Market Report

Page 1

Industrial Market Report

3Q’14


HOUSTON, T X

The Market

“

Given the recent drop in oil prices over the past few weeks, I am a little concerned about what OPEC is doing. There is a direct correlation between the price of oil and the Industrial real estate market in Houston. If oil prices stablilize the positive absorption, low vacancy rate, and strong demand will continue into 2015.

“

Chris Caudill SIOR | Partner, Industrial Division, NAI Houston


The Houston Industrial Market

Economic Outlook

From the second to third quarter of 2014, vacancy rates of the industrial market declined from 5.3 to 5.0%, consistent with a corresponding 40% increase in net positive absorption. This decline is in spite of the fact that there were >3,000,000 square feet in deliveries of new space. With another 6,000,000 square feet of industrial construction in progress, market supply should begin to reach its demand.

The U.S. economy, while continuing to

Net absorption of industrial space reached a positive 2,989,991 square feet in the third quarter. Just under 2,200,00 square feet of deliveries occurred in 27 newly constructed buildings. In contrast, the second quarter of 2014 saw a net absorption of positive 2,759,375 square feet, with 3,093,55 square feet in deliveries. With such continued net absorption and deliveries, the vacancy rate of industrial market has dropped to 5.0%, compared to 5.4% a little over a year ago.

The positive outlook on the national economy is supported largely by numbers for gross domestic product (GDP), unemployment, business spending, and housing. GDP is anticipated to be 3.5% growth rate for the third quarter of 2014 (compared to -2.1% from first quarter 2014), with a 3.0% growth rate for the fourth quarter of 2014 and into early 2015. Unemployment continues to decline, dropping to 5.9% in September 2014, and is anticipated to hover around 6% in the near term and possibly drop toward 5.6% in late 2015. Job growth in Texas continues to be among the highest across states, with unemployment in August 2014 at a projected low of 5.3%.

Flex projects reported a vacancy rate decrease from the end of the second quarter of 0.8%, down to 7.1%, with a year-to-date net absorption of positive 743,660 square feet. While warehouse project vacancy decreased to 4.8% over the quarter, with a positive net absorption of 2,594,104 square feet, it was not able to keep up with the 6.9 million square feet in deliveries year-to-date. Rental rates for the third quarter of 2014 remain largely unchanged since the last quarter, at $5.95 per square foot for the industrial market. Rent requests for warehouse and flex properties were $5.60 and $8.90 per square foot, respectively, over the third quarter. The total Industrial inventory at the end of the third quarter of 2014 was 532,572,953 square feet across 17,557 buildings. Contributing to these figures were 483,710,713 square feet across 15,631 warehouse buildings, and 48,862,240 square feet across 1,926 flex buildings. Currently under construction in the Houston area are 6,349,474 square feet of industrial space in 113 buildings. Houston’s market has been consistently absorbing 1 - 2 million square feet per quarter. Of this new space currently under construction, ~25% (1,603,529 square feet) is already preleased, up 8% since last quarter.

positively respond from the downturn, is showing signs of looking better than previously thought. Positive outlook is carried largely by improvements in the gross domestic product, unemployment, and business spending, while a slightly negative outlook is carried by energy and trade, and slowdowns in other world economies such as Europe, China, Brazil, and Japan.

Business spending is now picking up by a gain of about 4.5%, but is anticipated to increase by 7% in 2015. Both increased manufacturing and new equipment purchases to support production are underlying increased business spending, though businesses show a general sentiment to spend more to expand their capacity. As of late September 2014, the Houston Business Cycle Index shows the city’s economic growth up by 4.7% from last year. Housing recovery continues, though irregular, with low inventory driving pent up demand. Energy and trade dominant the negative outlook on the U.S. economy. Export trades continue to make small increases, though slowdowns in other world economies will likely hamper this in time. The trade deficit this year will increase slightly from last year to ~$500 billion. While projections are for U.S. dependency on foreign energy to decline, the U.S. will not be a net energy exporter for a decade or more. Though the U.S. is seeing key advances in the domestic oil and gas industry, declines in oil prices as measured by West Texas Intermediate (WTI) are not likely to reverse in the near term.


Industrial Space: Changes in Class A and B Year-over-Year: 3Q13 vs. 3Q14

NET ABSORPTION

VACANCY RATE

CONSTRUCTION

ASKING RATES

Absorption 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0

2013 3Q

2013 4Q

2014 1Q

2014 2Q

2014 3Q

Rental Rates $6.00 $5.95 $5.90 $5.85 $5.80 $5.75 $5.70 $5.65 $5.60 $5.55

2013 3Q

2013 4Q

2014 1Q

2014 2Q

2014 3Q

Vacancy 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

2013 3Q

2013 4Q

2014 1Q

2014 2Q

2014 3Q


Select Largest Deliveries Tenant

Industrial Under Construction

Rentable Percent Building Area Leased

10565 Greens Crossing Blvd 8303 Fallbrook Dr 3505 Pasadena Freeway 19802 Imperial Valley Dr 8039 Humble Westfield Rd 121 Esplanade Blvd 3750 Highway 225 16245 Port NW 11220 Ella Blvd 13627 W Hardy Rd 11951 Spectrum Blvd 525 Century Plaza Dr 7330 Langfield Rd 16501 Central Green Blvd 16507 Central Green Blvd 350 Century Plaza Dr 13615 S Gessner Rd 5737 Brittmoore Rd 433 Plaza Verde Dr 545 Plaza Verde Dr 3700 Hwy 225 Rd 7390 Northcourt Rd 14646 Kirby Dr 71 Esplanade Blvd

600,750 400,250 400,000 328,020 250,200 244,550 185,168 171,850 162,780 151,339 150,000 149,500 132,470 129,143 129,143 125,000 123,300 122,500 120,159 120,159 118,500 113,065 110,000 106,700

Recent Lease Transactions

83% 0% 100% 0% 0% 0% 100% 87% 0% 100% 100% 100% 100% 81% 0% 0% 0% 100% 0% 0% 57% 100% 100% 0%

Tenant 777 Highway 90A W 11810 N Gessner Rd 8401 Fallbrook Dr 11717 Windfern Rd 20710 Hempstead Rd 971 N Sam Houston Parkway E 4800 W Greens Rd 660 Greens Pky 11747 Windfern Rd 300 Airtex Dr Beltway 8 & Highway 225 8401 Fallbrook Dr 9254 Park South Vw 11720 N Gessner Rd 18945 Kenswick Dr Greens & Aldine Westfield Rd 14820 North Fwy JFK/Kennedy Greens Blvd 20702 Hempstead Rd 10401 S Sam Houston Pky W Beltway 8 & Highway 225 8401 Fallbrook Dr 5737 Brittmoore Rd 8770 West Rd 22240 Merchants Way 8790 West Rd 8401 Fallbrook Dr 14155 W Hardy Rd Bammel Rd Bammel Rd 25311 Kingsland Blvd Katy Hockley Cutoff & Cla Dr 18400 Kieth Harrow Blvd 19720 Aldine Westfield Rd 27603 Commerce Oaks Dr 9370 Kirby Dr 105 Riley Rd

Tenant

Building

Gulf Winds International* DB Schenker Gulf Winds International Lennox International Gemini Transportation* Team Alloys Office Furniture Connection American Tile & Stone Geodis Wilson USA, Inc.* NDLI ERA Industries Coredyne Premium Oilfield Technologies N2It Containers Performance Contracting Group Interstate-McBee G&H Diversified Manufacturing

411 Brisbane DCT Airtex Industrial Center 5300 SH 146 (B-T-S) 11717 Windfern Rd. 1815 Turning Basin Dr. Wallisville Rd. Industrial Park 13101 Almeda Rd 8760 Clay Rd. Point North One Sam Houston Business Park 6028 Navigation 11973 FM 529 5727 Brittmoore Rd. 6002 Murphy 221 Beltway Green Blvd. Central Green Business Park 10930 Brittmoore Park Dr.

Rentable Building Area

Percent Leased

650,000 441,000 362,320 362,180 357,887 352,000 350,820 350,000 320,430 225,360 199,680 197,917 193,741 155,400 150,000 147,112 126,568 120,000 114,800 90,000 87,880 86,747 86,250 77,987 64,313 63,000 62,061 42,600 37,500 33,000 31,000 30,000 30,000 29,500 27,603 26,250 26,100

100% 0% 0% 53% 0% 0% 0% 100% 0% 0% 0% 0% 0% 0% 100% 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Size (SF) 345,100 267,170 243,000 190,000 139,630 136,928 125,278 121,795 61,790 45,675 44,000 41,626 39,000 33,000 32,140 25,600 25,000


Submarket Reports Flex Market Statistics Market Austin County Ind

# Blds Total RBA

Total Avail SF

Vacancy YTD Net Percentage Absorption SF

Under Total Average Const SF Rate ($/SF/YR)

0

0

0

0.0%

0

0

$0.00

CBD Ind

175

3,748,862

312,723

8.3%

17,274

0

$5.90

North Corridor Ind

369

10,662,193

833,647

7.8%

138,131

0

$7.78

Northeast Corridor Ind

64

774,295

38,169

4.9%

14,730

0

$8.35

Northwest Corridor Ind

530

15,875,444

1,037,029

6.5%

194,533

70,250

$9.65

San Jacinto County Ind

0

0

0

0.0%

0

0

$0.00

Southeast Corridor Ind

205

3,163,643

291,069

9.2%

52,451

0

$9.87

Southern Corridor Ind

116

2,456,291

186,594

7.6%

64,447

0

$9.32

Southwest Corridor Ind

467

12,181,512

787,847

6.5%

266,094

26,250

$10.20

1,926

48,862,240

3,487,078

7.1%

747,660

96,500

$8.90

Totals

Warehouse Market Statistics Market Austin County Ind

# Blds Total RBA

Total Avail SF

Vacancy Percentage

YTD Net Under Total Average Absorption SF Const SF Rate ($/SF/YR)

23

1,540,395

2,400

0.2%

(500)

0

$0.00

CBD Ind

1,933

55,820,626

2,624,623

4.7%

26,760

0

$4.61

North Corridor Ind

2,773

77,114,133

5,528,696

7.2%

2,601,590

1,944,543

$6.48

Northeast Corridor Ind

871

33,275,512

598,191

1.8%

380,367

50,560

$4.94

Northwest Corridor Ind

3,913

130,113,099

4,690,374

3.6%

2,338,688

3,081,717

$6.38

San Jacinto County Ind

4

34,464

0

0.0%

0

0

$0.00

Southeast Corridor Ind

2,155

81,359,162

5,348,087

6.6%

474,515

138,784

$4.60

Southern Corridor Ind

1,802

46,811,991

1,690,852

3.6%

877,356

237,882

$5.33

Southwest Corridor Ind

2,157

57,641,331

2,784,325

4.8%

134,186

799,488

$6.29

15,631 483,710,713

23,267,548

4.8%

6,832,962

6,252,974

$5.60

Total Avail SF

Vacancy Percentage

Totals

Total Industrial Market Statistics Market Austin County Ind

# Blds Total RBA

YTD Net Under Total Average Absorption SF Const SF Rate ($/SF/YR)

23

1,540,395

2,400

0.2%

(500)

0

$0.00

CBD Ind

2,108

59,569,488

2,937,346

4.9%

44,034

0

$4.73

North Corridor Ind

3,142

87,776,326

6,362,343

7.2%

2,739,721

1,944,543

$6.68

Northeast Corridor Ind

935

34,049,807

636,360

1.9%

395,097

50,560

$5.02

Northwest Corridor Ind

4,443

145,988,543

5,727,403

3.9%

2,533,221

3,151,967

$6.84

San Jacinto County Ind

4

34,464

0

0.0%

0

0

$0.00

Southeast Corridor Ind

2,360

84,522,805

5,639,156

6.7%

526,966

138,784

$4.82

Southern Corridor Ind

1,918

49,268,282

1,877,446

3.8%

941,803

237,882

$5.55

Southwest Corridor Ind

2,624

69,822,843

3,572,172

5.1%

400,280

825,738

$6.98

17,557 532,572,953

26,754,626

5.0%

7,580,622

6,349,474

$5.95

Totals


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Fm 1128 Rd

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Arrangement in which a tenant leases rental property to another, and the tenant becomes the landlord to the subtenant.

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Fulton St

St in Ma

Ways id

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Blvd Mcduffie St

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Texas Pkwy

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First Colony Blvd l R d

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T C Jester

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Obrien Rd Rd iver

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Square foot/per square foot, used as a unit of measurement.

Red Bl

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All physically unoccupied lease space, either direct or sublease.

Thompson Rd

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N Gordon St

Overall Vacancy

Blvd

Area

Eg

Bamore St

S Main St

Rd

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Space currently available for lease directly with the landlord or building owner.

g Rd hbur

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Direct Vacancy

Bay Brook Forest Dr

r

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Pearland Sites Rd

d

dR

Rental rate as quoted from each building’s owner/ management company. For industrial, a NNN basis.

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Blv

Do

SM

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Average Asking Rental Rate

Underwood Rd

N Main St

Almeda School Rd

Sc

am

ale

sd

ar

Be

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EB

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(Proposed)

Net rentable area considered available for lease; excludes sublease space.

1

Rd

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Grand Pkwy

1st St

Available Square Footage

Sublease

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NF

Mckeever Rd

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Monroe Rd

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Fuqua St

Sa

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Trammel-Fresno Rd

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Sh

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Ga

S

Rd

Sam Houston Pkwy

F-M Rd 518

The change in occupied space in a given time period.

Center St

d

Mykaw

Almeda Genoa

Chocolate Bayou Rd

Sycamore St

Sheldon Rd

Uvalde Rd

Rd

Blv St

er

av

W Dallas St

6

W Fairmont Pkwy

Sp

Mchard Rd

-S

vin

Gr e

E Edgebrook Dr

South Acres Dr

Anagnost Rd

T

Oilfield Rd

W Pasadena Blvd

Sycamore Ave

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to

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Rd

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Ho

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Co

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Blvd

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Almeda-Genoa Rd

Anderson Rd

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Winkler Dr

dB

Shaver St

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Be

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Re

Garner Rd

Allendale Rd

All

Martin Luther King Blvd

288

Dr

Bellfo

Blvd

Cullen Blvd

Hiram Clarke Rd

S Post Oak Rd

Airport

225

Broadway St

r St

d

W Orem Dr

d

Long

Reed Rd

St

Main St

Maine

gs R

Blvd

toport

N Richey St

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Telephone Rd

Stella Link Rd

Greenbriar St

tone

Jacin

8

Reveille St

Yellows

Grig

10

Clinton Dr

My

Jones Rd

Woodforest Blvd

Bandera St

Federal Rd

45

Holland St

St

Maxey Rd

Lathrop St

Lockwood Dr

Arcadia St

et Rd

Highlands Rd

610

Ave

St

yN n Pkw o usto

Mesa Dr

N Wayside Dr

Hirsch Rd

Span

es R

Holm

W Fuqua St

Pkw

Lockwood Dr

Irvington Blvd

Kirby Dr

Greenbriar St

Buffalo Speedway

Chimney Rock Rd

Fondren Rd

ton

Polk

rl ish T

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Market Stre

Dr

Blvd

Prairie

wy

Mchard Rd

Cartwright Rd

Absorption (Net)

SF/PSF

Montrose Blvd

Weslayan St

Post Oak Blvd

Indian Trl

Hillcroft Ave

S Gessner Rd

ous

Navig

ation

Bellfort St

W Fuqua Dr

Al

W il l i a m s

Studewood St

y ne im Rd Ch ck Ro

Hillcroft St

Fm 1092 Rd

Rd

Piney Point Rd

Murphy Rd

Pecan Point Cir

Dulles Ave

Thompson

Gessner Rd

Wilcrest Dr Dr

Louise St

36

d

Levee Rd

59

Airport Ave

Mons Ave

eR

ay

St

Rd

Pik

St

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1th

Ransom

ch o o

t in S Ma SS am H

Fa

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Flintwood Dr

Wa lk

S1

Fm 723 Rd

Houston St

Clay St

Avenue D

Southgate Dr

Homeward Way

Sartartia Rd

ALT 90

Rd

Blvd

r ste r Oy ek D Cre

ens

Wilcrest Dr

F-M Rd 359

Ow

d swoo S Brae Blvd

59

Elgin

Old

Evergreen St Beechnut St

Clinton

Alabama St

610

B

Airport Blvd W Airport

6 er Kempn

e

nn

o iss

W Bellfort St

Stiles Ln

Eldridge Rd

Farmer Rd

Beadle Dr

S Kirkwood Rd

Boss Gaston Rd

Synott Rd

99

Beechnut St

t tS

Collingsworth St

Washington Ave

San Felipe Rd

Richmond Ave

Patton St

Dr

Woodway D r

Westheimer Rd

Bellaire Blvd

Howell Rd

Old Richmond Rd

Fm 1464 Rd

Fm 723 Rd

Spring-Green Rd

Clodine-Reddick Rd

Beechnut Rd

W 11th St

Memorial

San Felipe St

S Dairy Ashford St

Rd

Addicks-Howell Rd

Addicks Clodine Rd

er

im

the

s We

093

vd

Eldridge Rd

kwy

d

Bunker Hill Rd

Rd

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yR

Fr

N Kirkwood Rd

eek S

W 20th St

90

SOUTHWEST CORRIDOR IND (7)

tH

on

aum

Be

Kelley St

610

ma St

Daco

Voss Rd

SP Beeler Rd

Rd

10

Briar Forest Dr

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N Shepherd Dr

t Rd

Poin

Memorial Dr

Kingsland Blvd

Wes th

ad

Blvd

W Crosstimbers St

Rosslyn Rd

Long

W 34th St

ste

Silber Rd

8

10

Highland Knolls Dr

Wheatley St

Hollister St

Groeschke Rd

Hammerly

mp

Tidwell Rd

Crosb

Dr

d yR

er

Houston Rd

Fairbanks N

Gessner Dr

Blvd

Brittmoore Rd

Franz Rd

W 43rd St

He

59

E Tidwell Rd

BUS 90

SOUTHERN CORRIDOR IND (6)

Little York Rd Parker Rd

SOUTHEAST CORRIDOR IND (5)

mH E Sa

m

line

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Air

on M

e Pkwy N Eldridg

Barker Cypress Rd

Fry Rd

N Mason Rd

on Rd

Clay Rd

y kw

Homestead Rd

W

548

Garrett Rd

wy

ton Pk

Hous

Lake

Mount Houston Rd

45

ead Blvd

S Diamondh

NORTH WEST CORRIDOR IND (4)

Aldine Mail Rd

W Mount Houston Rd

W Tidwell Rd

Clay Rd

Clay Rd

nP

se

Hollyvale Dr

W Little York Rd

6

Blvd

m

us

N Houston Rosslyn Rd

Henry Rd

Lauder Rd

F-M Rd 529

W Little York Rd

head

ond

iam

ND

NORTH EAST CORRIDOR IND (3) 8

West Rd

249

Foley Rd

NORTH CORRIDOR IND (2) De

Aldine Bender Rd

Antoine Dr

Huffmeister Rd

8

Fairbanks N Houston Rd

West Rd

CBD IND (1)

Greens Rd Gears Rd

Dr

Rd

ita

oc

sc

Ata

Rankin Rd

Hu

y

Rd

Lee

Dr al

kw

d nF Blv Joh nedy n Ke

Spears Rd

ri mo Me

Cypress North Houston Rd

Bammel North Houston Rd

ll P

Rankin Rd

Old

Cy pr es

Pkwy

sR d

on Houst

n Rd

Lee Rd

Rd tfield Wes

Dr

ns tera Ve

Rd Telge ba

290

F-M Rd 1960 1st St E

Will Clayton Pkwy

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To m

Fa

Rd W

Aldine

d eR lin Air

lvd aB Ell

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Rd

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Richey Rd

Grant Rd

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Fm 1960

tD

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wo

ss

pre

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Lo Malcomson Rd

Cy

p am Ch

d

aR

tt ue

Sp rin g

W Lake

Mcc

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Dr

wood

King

Methodology | Definitions | Submarket Map

249

West Rd

Wo odla Hill nd sD r

Dr

lzw

ig

hw

sc

a Tre

Grand Pkwy (Proposed)

6

S

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Ho

e

Mu

Cypress Rosehill Rd

0

n pri

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sR

res

yp

gC

Ln ller

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rdy Rd W Ha

Rd

Fm 2920 Rd

Sublease Space 6

3

r

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Pin

Total square footage being marketed Copyright © and (P) 1988–2012 Microsoft Corporation and/or its suppliers. All r Certain mapping and direction data © 2012 NAVTEQ. All rights reserved. The D for lease by the tenant. America are trademarks of Tele Atlas, Inc. © 2012 by Applied Geographic Solu

Sublease Vacancy

Space currently available in the market for sublease with an existing tenant within a building acting as the landlord.

RBA (Rentable Building Area)

Expressed in square feet, this area includes the usable area and its associated share of the common areas.


3Q’14

MARKETING & RESEARCH TEAM

Industrial Market Report J. Nathaniel Holland, Ph.D Chief Research and Data Scientist

Steven Cox Director of Property Research

Nuance Stone Sr. Director of Marketing and Research

1900 West Loop South, Suite 500 Houston, TX 77027 tel 713 629 0500

www.naihouston.com Sources: NAI Houston Research, CoStar, Federal Reserve Bank of Dallas, Greater Houston Partnership, Houston Chronicle, Houston Association of Realtors he information contained herein has been given to us by sources we deem reliable. We have no reason to doubt its accuracy, however, we T do not make any guarantees. All information should be verified before relying thereon.


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