Shifting Supply Chain Keeps Houston Industrial Absorption Strong As Millions Of SF Deliver
Tenants are demanding industrial space, and Houston is delivering.
Growth in Houston's manufacturing and distribution businesses coupled with a shifting supply chain bringing more traffic through the region has kept absorption of industrial space high amid millions of square feet being constructed and delivered, new reports indicate.
The industrial market absorbed 5.5M SF of industrial space in Q1 2023, largely driven by 6.6M SF of new supply delivered during the quarter, according to an Industrial Insights report released Wednesday by JLL. Overall, JLL records 8.1M SF of leasing deals signed in Q1.
The number of new deliveries is even higher in CBRE’s Q1 Houston industrial report, also released Wednesday, at 7.8M SF. That’s more than double the deliveries in Q1 2022.
CBRE’s data includes all industrial buildings 50K SF and greater in size, while JLL’s report analyzes leases and buildings of 20K SF or greater.
CBRE credits the large volume of new square footage delivered to "robust tenant demand" as Houston and its port grow in importance to the nation's supply chain. More than 56% of new deliveries were pre-leased, according to JLL.
That demand has kept rents high and vacancy low. Average rental rates climbed to 78 cents per SF on a monthly, gross basis, reflecting a 19.4% increase from Q1 2022, according to the CBRE report. That’s up from an average of 59 cents in 2020.
Vacancy came in at 4.4%, which is slightly higher than 2022’s average of 3.8%, but largely attributable to the large number of construction deliveries during Q1, according to CBRE.
The notable increase in traffic and infrastructure improvements at Port Houston are contributing factors to the demand for industrial space, the CBRE report states. The port reported a 15% increase in container volume in February compared to the previous February, marking its highest February on record.
Three of the five largest deliveries in Q1 2023 were in the port's Southeast submarket, according to JLL’s report, including the largest delivery, a 1M SF, 100% leased building called Quantix Distribution Center. Quantix, headquartered in The Woodlands, is a supply chain logistics company serving the chemical industry.
The other two largest deliveries in Q1 — including Crow Holdings Industrial’s 836K SF Woods Road Business Park Building 1 — were in the West submarket. Igloo, a manufacturer of ice chests and drinking containers headquartered in Katy, occupied 550K SF at Woods Road Business Park, according to CBRE.
New leases and H-E-B expanding 333K SF at Empire West contributed to 1.5M SF of absorption in the west submarket last quarter, the CBRE report states.
CBRE has newly established the West Houston submarket, which starts near the Grand Parkway in Katy/Cinco Ranch and extends west along Interstate 10 due to the rapid growth in the area. It delivered 3.5M SF in Q1 2023 and has another 2.7M SF under construction, CBRE reported.
The submarket is a hub of master-planned community development and increasing consumerism, according to the report.
Overall, CBRE reports 28.5M SF of industrial space is under construction throughout Houston.
In its report, CBRE said new expansion by major players in manufacturing and distribution will keep leasing velocity strong this year. It added that the business-friendly Houston area will also likely gain investments from ESG initiatives, namely the solar energy and electric automotive sectors.
