Net Absorption Receives Boost, Underlying Fundamentals Remain Healthy

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Oct. 4, 2016

net absorptionQ3 2016 Houston Industrial Insight & Market Statistics

While its office counterpart deals with an ongoing deluge of sublease space, Houston’s industrial market remains healthy overall. The industrial market experienced a significant jump in absorption in the third quarter, namely due to the delivery of a 3.9 million-square-foot build-to-suit manufacturing building in the northwest submarket. Even without a boost from the largest concrete tilt-wall building in the world, Houston’s industrial market maintained solid fundamentals in the third quarter.

The southeast submarket continues to be a star on multiple fronts. The submarket dominated leasing activity, with 1.3 million square feet of completed transactions, which accounted for 40.7 percent of the total volume. Net absorption was an impressive 1.2 million square feet in the third quarter. Furthermore, the southeast’s 4.4 million square foot construction pipeline comprises a commanding 60.8 percent of total development activity.

Net absorption for the industrial sector totaled 5.8 million square feet and deliveries were 70.3 percent preleased. Absorption was bolstered by the strong performance of the northwest and southeast submarkets, but not all industrial submarkets are riding the wave of this peak cycle, equally. The north industrial submarket, for instance, struggled with an oversupply of inventory through the third quarter.

Warehouse and distribution demand is the driving force behind the strength of Houston’s industrial market. Tenant activity in the market is coming from a variety of industries including consumer goods, building materials, logistics and plastics.

Asking rents continue to rise moderately, as they have since the third quarter of 2015. However, as the market nears the end of this cycle, rent growth will likely continue to decelerate and taper off through the end of 2016.

Two other factors demonstrate a minor deceleration in the record-setting pace at which the industrial market has been operating: construction and sublease.

In total, Houston’s industrial sector has 7.2 million square feet of space under construction, the lowest level since 2014. With the delivery of the 3.9 million square foot manufacturing campus, only 130,000 square feet remains under construction in the manufacturing sector.

Furthermore, sublease space has been creeping up in the industrial market over the last year. Sublease space in the third quarter grew to nearly 4 million square feet from 2 million square feet a year ago. Neither sector of space has been immune to the increase. Warehouse/distribution saw an 81.5 percent increase, and manufacturing has seen a 120.4 percent growth in total available sublease space year-over-year.

For more market data on Houston’s Industrial market, click the links below to download the full Q3 2016 industrial market report and statistics.

Q3 2016 Houston Industrial Insight

Q3 2016 Houston Industrial Statistics

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