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More Houston Industrial Space Absorbed During Q3 Than In Most Years

While Houston’s office market is suffering vacancy rates not seen since the 1980s, the city is setting records in the opposite direction when it comes to industrial properties.

Leasing volume in the sector climbed to 10M SF in the third quarter for a total of 31M SF so far this year, according to the latest JLL report. Vacancy fell to 8.6%, decreasing for the third quarter running. And net absorption for the three-month period hit 9.5M SF — a figure that matches the average square footage absorbed in an entire year over the past 10 years, according to Rachel AlexanderJLL Houston's senior vice president of research.

After three years of oversupply in Houston's industrial market, demand has caught up and then some.

“The Houston industrial market is experiencing dynamic and healthy growth on multiple fronts,” Alexander said in the report, adding that she expects vacancy to drop to the high-7% range by the end of 2021. “[Tenants-in-the-market] activity indicates that occupier demand will likely remain at above-average levels, helping set a new high watermark for annual occupancy gains in 2021.”

Among the biggest new leases were pet supplier’s 690K SF deal at Northpoint 90 Logistics Center and a 629K location at Prologis Presidents Park for an unnamed e-commerce user. The quarter also saw some high-profile move-ins, including Lowe’s 1.5M SF build-to-suit property in New Caney, 1.9M SF between two projects for an e-commerce company in the Southwest submarket, and 1.3M SF for Home Depot in two buildings in the North and Northwest submarkets.

Demand for industrial space is outpacing supply in 2021 after several years of oversupply, the report said — a situation likely to continue through the end of the year thanks to a 15.5% decrease in construction activity due in large part to higher materials costs and supply chain issues creating building delays. Of the 8.1M SF of new deliveries during the quarter, 83.2% were pre-leased. That appetite for new construction, combined with a general flight to quality, is pushing up asking rents across the metro, JLL said.

Demand for industrial space has soared amid supply chain issues that have redirected traffic to Port Houston, spurring a significant number of third-party logistics firms and retailers reliant on imports to set up shop. TGS Cedar Port Partners broke ground late last month on a 1.2M SF cross-dock warehouse, the largest speculative building to date in greater Houston, in an area home to major distribution and fulfillment centers for the likes of Walmart, Floor & Décor, Ikea and Home Depot.