Industrial demand soars as land constraints stifle supply

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Oct. 3, 2017

By: Jeff Venghaus, executive vice president and industrial lead, JLL Houston

industrial demand

After a relatively quiet second quarter, Houston’s industrial market returned to its fervent pace in the third quarter. Vacancy and availability decreased, while the market recorded nearly 3 million square feet of positive net absorption, a significant increase from 600,000 square feet during the second quarter.

As a result of sustained high demand, total vacancy decreased again to 4.9 percent. Land constraints are keeping the construction pipeline low.

The North industrial submarket, which has struggled with oversupply in recent quarters, was a standout this quarter, capturing 52 percent of leasing activity. In comparison, the submarket represented just 11 percent of industrial leasing activity in the previous quarter. The North market also accounted for more than 40 percent of absorption this quarter. The submarket’s robust leasing activity came as the result of landlords getting more aggressive to fill vacant space, and limited supply of larger distribution spaces in Northwest Houston. A 600,000-square-foot lease for Emser Tile was one of several significant deals completed in the North submarket during the third quarter.

Strong market fundamentals, even through the energy downturn, have led to increased interest from institutional and foreign investors. Year-to-date the industrial market has seen approximately $543 million in total transaction volume, up from $170 million at the same time last year. Houston’s increasingly popular distribution market is capturing the vast majority of investment activity with 93 percent of this year’s sales in the warehouse/distribution sector.

Looking forward, local and regional investors can expect to see increased competition as foreign capital looks to Houston for opportunities to achieve higher returns on industrial portfolios. With more than 10 million square feet of tenants in the market, there’s no shortage of user demand in the pipeline.

CLICK HERE to download our full Q3 industrial market insight and statistics.

 

About the Author

Jeff Venghaus is an Executive Vice President at JLL, where he serves as the leader of JLL Houston’s Industrial Services group. With more than 17 years of experience, Jeff specializes in industrial end-user representation including acquisitions, dispositions, leases, build-to-suit and design-build projects. He has been named a Houston Business Journal Heavy Hitter on seven occasions and was previously named the 2010 Industrial Broker of the Year and 2004 Industrial Rising Star by NAIOP. Connect with Jeff on LinkedIn

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