Q2 2014 Houston Industrial Market Report

1. www.colliers.com/houston
Q2 2014 | INDUSTRIAL MARKET
2%
3%
4%
5%
6%
7%
8%
-500,000
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
Absorption New Supply Vacancy
Houston’s industrial market remains one of the healthiest U.S. industrial
markets, its continued expansion sustained primarily due to the growth in the
oil and gas industry. Texas is expected to produce more oil and gas than all
but one of the OPEC nations in 2014 due to the booming Eagle Ford Shale
and Permian Basin, and Houston’s industrial real estate market will benefit
from that rapidly increasing production.
During the second quarter, 1.6M SF of Houston’s industrial inventory was
absorbed, bringing year-to-date net absorption to a positive 3.3M SF.
Industrial leasing activity which includes renewals, reached 3.3M SF, almost
1M SF less than seen in the previous quarter. 2.6M SF of new product
delivered during the second quarter, pushing 2014 year-to-date deliveries to
5.6M SF. Additionally, 3.9M SF of industrial space is currently under
construction. Houston’s average industrial vacancy rate remained
unchanged between quarters at 5.5% and increased 60 basis points from
4.9% to 5.5%, year to date. The citywide average quoted industrial rental rate
decreased 0.3% between quarters from $6.11 to $6.09 per SF NNN, and
increased 5.0% on a year-over-year basis from $5.80 per SF NNN.
The Houston metropolitan area added 93,300 jobs between May 2013 and
May 2014, an annual increase of 3.3% over the prior year’s job growth. Local
economists have forecast 2014 job growth to remain strong, expecting
between 68,000 and 72,000 new jobs. Houston’s unemployment rate fell to
5.0% from 6.1% one year ago. Houston area home sales were down by
7.3% between May 2013 and May 2014, the first decline in the past 34
months. The reduction was due almost primarily to a lack of inventory.
Houston’s economy is expected to remain strong in 2014 due to healthy job
growth and continued expansion in the energy sector.
RESEARCH & FORECAST REPORT
HOUSTON INDUSTRIAL MARKET
ABSORPTION, NEW SUPPLY & VACANCY RATES
Houston’s Industrial Market Delivers 5.6M SF of New
Inventory in the First Half of 2014
HOUSTON INDUSTRIAL
MARKET INDICATORS
Q2 2013 Q2 2014
CITYWIDE NET
ABSORPTION (SF) 1.7M 1.6M
CITYWIDE AVERAGE
VACANCY 4.9% 5.5%
CITYWIDE AVERAGE
RENTAL RATE $5.80 $6.09
SF DELIVERED 1.7M 2.6M
SF UNDER
CONSTRUCTION 4.3M 3.9M
Houston
UNEMPLOYMENT 5/13 5/14
HOUSTON 6.1% 5.0%
TEXAS 6.3% 5.1%
U.S. 7.3% 6.1%
JOB GROWTH
ANNUAL
CHANGE
# OF JOBS
ADDED
HOUSTON 3.3% 93.3K
TEXAS 3.4% 375.3K
U.S. 1.8% 2.4M
JOB GROWTH & UNEMPLOYMENT
(Not Seasonally Adjusted)

2. RESEARCH & FORECAST REPORT | Q2 2014 | HOUSTON INDUSTRIAL MARKET
COLLIERS INTERNATIONAL | P.2
Vacancy & Availability
Houston’s industrial vacancy rate
remained unchanged between
quarters at 5.5%, and increased by 60
basis points from 4.9% to 5.5%, year
to date. At the end of the second
quarter, Houston had 26.8M SF of
vacant industrial space. Among the
major industrial corridors, the
Northeast Corridor has the lowest
vacancy rate at 3.2%, followed by the
Northwest Corridor at 4.1% and then
the Southern Corridor at 4.2%. The
largest concentration of vacancy is
located in the North Corridor, with an
8.0% vacancy rate.
Houston’s industrial construction
pipeline had 3.9M SF of projects
underway at the end of the second
quarter, the majority of which being
spec development. The largest
project under construction is
Panattoni’s 441,000-SF spec
warehouse located on N. Gessner in
the Northwest Corridor. A list of
buildings currently under construction
can be found on Page 4 of this report.
Rental Rates
According to CoStar, our data service
provider, Houston’s citywide average
quoted industrial rental rate for all
product types decreased 0.3% from
$6.11 per SF NNN in the first quarter
to $6.09 per SF NNN in the second
quarter. According to Colliers’ internal
data, actual lease transactions are in
the $4.44 – $4.92 per SF NNN range
for newer bulk industrial spaces, while
flex rates are ranging from $6.60 to
$9.00 per SF, depending on the
allowance for tenant improvements
and the location of the property. By
property type, the average quoted
NNN rental rates are as follows: $5.71
per SF for Warehouse Distribution
space; $4.34 per SF for Bulk Logistics
space; $10.11 per SF for Flex/Service
space; with Tech/R&D space
averaging $10.87 per SF, according
to CoStar.
Absorption & Demand
Houston’s industrial market posted
1.6M SF of positive net absorption in
the second quarter, with the North
Corridor submarket contributing the
largest amount, 821,071 SF, followed
by the Northwest Corridor which
posted 284,086 SF, the Southwest
Corridor at 259,871 SF, and the
Southern Corridor at 221,969 SF of
net positive absorption.
There were several major tenant
move-ins contributing to net
absorption gains in the second
quarter, including Kauffman Tire
(91,200 SF); Atlanta Food
International (84,600 SF); Poly Bags
(62,600 SF); International Rags, Ltd.
(62,500 SF); Gas Process Equipment
Co. (47,500 SF); FreshPak (44,800
SF); Chadwell Supply (43,500 SF);
ToolMart (38,100 SF) and Nordyne
LLC (37,500 SF).
Leasing
Houston’s industrial leasing activity
reached 3.3M SF in the second
quarter. A list of select second
quarter industrial lease transactions
are included in the table below.
1 Renewal
2 Expansion
3 Sublease
4Pre-lease proposed or under construction
Building Name/Address Submarket SF Tenant Lease Date
1701 Crosspoint Avenue Southwest Far 72,505 BASF1 Jun-14
Carson Commerce Center East-Southeast Far 67,742 Elliott Electric Co. Apr-14
11629 N Houston Rosslyn Rd Hwy 290/Tomball Pky 47,500 Gas Process Equipment Co. Apr-14
8615 North Loop E Northeast Hwy 90 36,352 RL Building Supply, LLC May-14
Sam Houston Pkwy Dist Ctr Northwest Inner Loop 33,730 Graniti Vicentia, LLC May-14
Udelson Industrial Park North Outer Loop 30,000 Max Torque, LLC May-14
East Belt Business Park 4 East-Southeast Far 25,267 Jotun Paints Apr-14
Candlebridge Park North Hardy Toll Road Ind 20,400 Delta Subsea Apr-14
Clay-Campbell Business Park Northwest Inner Loop 19,950 Prairie Supply1
Jun-14
Greenspoint Business Center North Hardy Toll Road Ind 17,775 Tellworks Communications Jun-14
Northwoods Industrial Park West Outer Loop 13,125 Gulf Coast Conversions1
Apr-14
Q2 2014 SELECT INDUSTRIAL LEASES

3. RESEARCH & FORECAST REPORT | Q2 2014 | HOUSTON INDUSTRIAL MARKET
COLLIERS INTERNATIONAL | P.3
Houston Industrial Market Summary
Sales Activity
Q2 2014
Total Sales : $570M
No. of Properties: 81
Total SF: 4.3M
Average $/SF: $45
Average Cap Rate: 8.6% Falcon Southwest sold a 377,752-SF
12-building industrial warehouse
portfolio to Hartman Mitchelldale
Business Park, LLC for $19.2M or $51
per SF. The portfolio is 87.2% leased
to various tenants. The buildings in
the industrial park were built in 1979
and remodeled in 2004.
C&W Investments sold a 151,260-SF
Class B industrial warehouse to STAG
Industrial Management, LLC for $8.9M
or $59 per SF. The building is 100%
leased to Smart Warehousing through
April 2021. The reported cap rate was
8.6%.
Sources: Real Capital Analytics; CoStar Comps
5400 Mitchelldale St 12614 Hempstead Rd
Market Rentable Area
Direct
Vacant SF
Direct
Vacancy
Rate
Sublet
Vacant SF
Sublet
Vacancy
Rate
Total Vacant
SF
Total
Vacancy
Rate
2Q14 Net
Absorption
1Q14 Net
Absorption
2Q14
Completions
1Q14
Completions
SF Under
Construction
Greater Houston Total 491,720,505 26,181,150 5.3% 637,355 0.1% 26,818,505 5.5% 1,583,925 1,755,866 2,645,694 2,951,422 3,930,859
CBD-NW Inner Loop 11,500,406 559,996 4.9% 31,860 0.3% 591,856 5.1% 62,709 15,767 - - -
Downtown 31,814,637 1,751,102 5.5% - 0.0% 1,751,102 5.5% (1,720) 101,850 - - -
North Inner Loop 5,076,141 534,906 10.5% - 0.0% 534,906 10.5% - (21,525) - - -
Southwest Inner Loop 7,198,717 61,171 0.8% - 0.0% 61,171 0.8% (15,601) - - - -
CBD Corridor Total 55,589,901 2,907,175 5.2% 31,860 0.1% 2,939,035 5.3% 45,388 96,092 - - -
North Fwy/Tomball Pky 17,347,742 1,489,803 8.6% 5,346 0.0% 1,495,149 8.6% 225,898 (66,181) 873,068 250,255 926,180
North Hardy Toll Rd 29,108,673 2,747,187 9.4% 59,122 0.2% 2,806,309 9.6% 441,818 495,206 449,474 797,506 423,440
North Outer Loop 18,791,750 1,386,001 7.4% 1,950 0.0% 1,387,951 7.4% 89,657 178,203 381,250 174,434 120,000
The Woodlands/Conroe 14,413,958 693,531 4.8% - 0.0% 693,531 4.8% 63,698 17,420 18,800 166,900 -
North Corridor Total 79,662,123 6,316,522 7.9% 66,418 0.1% 6,382,940 8.0% 821,071 624,648 1,722,592 1,389,095 1,469,620
Northeast Hwy 321 1,201,673 - 0.0% - 0.0% - 0.0% 0 600 - - -
Northeast Hwy 90 15,937,684 448,855 2.8% 136,200 0.9% 585,055 3.7% (54,458) (129,095) - 41,356 -
Northeast I-10 3,672,845 30,652 0.8% - 0.0% 30,652 0.8% 109,628 12,801 - - -
Northeast Inner Loop 11,591,910 430,372 3.7% - 0.0% 430,372 3.7% (7,842) 11,069 - - -
Northeast Corridor Total 32,404,112 909,879 2.8% 136,200 0.4% 1,046,079 3.2% 47,328 (104,625) - 41,356 -
Hwy 290/Tomball Pky 16,056,280 704,622 4.4% 20,541 0.1% 725,163 4.5% 154,657 72,540 - 105,358 1,578,981
Northwest Hwy 6 4,158,737 141,314 3.4% 24,000 0.6% 165,314 4.0% (24,086) (25,392) - - 357,887
Northwest Inner Loop 58,686,032 2,301,129 3.9% 74,554 0.1% 2,375,683 4.0% 22,402 (34,334) - 177,448 -
Northwest Near 17,187,843 462,963 2.7% 49,824 0.3% 512,787 3.0% 26,623 597,368 - 255,962 .
Northwest Outlier 17,160,063 1,054,831 6.1% - 0.0% 1,054,831 6.1% 106,728 80,354 79,743 63,382 64,313
West Outer Loop 23,683,929 707,903 3.0% 23,600 0.1% 731,503 3.1% (2,238) 83,495 189,125 332,581 86,250
Northwest Corridor Total 136,932,884 5,372,762 3.9% 192,519 0.1% 5,565,281 4.1% 284,086 774,031 268,868 934,731 2,087,431
East I-10 Outer Loop 13,047,099 264,136 2.0% - 0.0% 264,136 2.0% (1,000) (28,000) - - -
East-Southeast Far 47,305,783 4,918,042 10.4% 7,078 0.0% 4,925,120 10.4% (41,123) (76,120) 91,140 385,462 .
Southeast Outer Loop 18,374,310 496,361 2.7% 117,573 0.6% 613,934 3.3% (53,665) 33,741 - - -
Southeast Corridor Total 78,727,192 5,678,539 7.2% 124,651 0.2% 5,803,190 7.4% (95,788) (70,379) 91,140 385,462 -
South Highway 35 31,853,434 1,071,713 3.4% 23,600 0.1% 1,095,313 3.4% 201,820 384,427 327,294 143,390 283,808
South Inner Loop 12,771,468 762,132 6.0% - 0.0% 762,132 6.0% 20,149 51,596 - - -
Southern Corridor Total 44,624,902 1,833,845 4.1% 23,600 0.1% 1,857,445 4.2% 221,969 436,023 327,294 143,390 283,808
Highway 59/Highway 90 22,209,481 1,037,827 4.7% 44,500 0.2% 1,082,327 4.9% 66,434 23,694 208,800 30,000 90,000
Southwest Far 10,080,924 536,531 5.3% - 0.0% 536,531 5.3% 89,030 (45,617) - - -
Southwest Outer Loop 12,708,006 624,798 4.9% - 0.0% 624,798 4.9% 120,564 (72,481) - - -
Sugar Land/Ft Bend Co 18,780,980 963,272 5.1% 17,607 0.1% 980,879 5.2% (16,157) 94,480 27,000 27,388 -
Total Southwest Corridor 63,779,391 3,162,428 5.0% 62,107 0.1% 3,224,535 5.1% 259,871 76 235,800 57,388 90,000
HOUSTON INDUSTRIAL MARKET STATISTICAL SUMMARY
Q2 2014

4. RESEARCH & FORECAST REPORT | Q2 2014 | HOUSTON INDUSTRIAL MARKET
COLLIERS INTERNATIONAL | P.4
Q2 2014 Industrial Under Construction – 60,000 SF or greater
Q2 2014 Industrial Deliveries – 60,000 SF or greater
SUBMARKET BUILDING ADDRESS RBA
%
LEASED DEVELOPER
ESTIMATED
DELIVERY
DATE
Hwy 290/Tomball Pky Ind 11810 N Gessner Rd 441,000 0.0% Panattoni Oct-14
Hwy 290/Tomball Pky Ind 8303 Fallbrook Dr 400,250 0.0% Liberty Property Trust Jul-14
Hwy 290/Tomball Pky Ind Gessner Road & Beltway 8 362,180 0.0% DCT Industrial Trust Nov-14
Northwest Hwy 6 Ind 20710 Hempstead Rd 357,887 0.0% Duke Realty Corporation Sep-14
North Fwy/Tomball Pky Ind 4800 W Greens Rd 350,820 0.0% Davis Commercial Development Oct-14
North Fwy/Tomball Pky Ind 660 Greens Pky 350,000 100.0% Holder Construction Mar-15
North Fwy/Tomball Pky Ind 300 Airtex Dr 225,360 0.0% Pontikes Development Dec-14
South Hwy 35 Ind 9254 Park South Vw 193,741 0.0% Transwestern Aug-14
Hwy 290/Tomball Pky Ind 11720 N Gessner Rd 155,400 0.0% Panattoni Dec-14
North Hardy Toll Road Ind 400 Century Plaza Dr 149,760 0.0% Avera Companies Aug-14
North Hardy Toll Road Ind 2020 Greens Rd 147,112 0.0% IDV Investment & Development VenutresDec-14
North Hardy Toll Road Ind 14820 North Fwy 126,568 0.0% DCT Industrial Trust Nov-14
North Outer Loop Ind JKF/Kennedy Greens Blvd 120,000 100.0% Clay Development Construction Aug-14
Hwy 290/Tomball Pky Ind 8780 West Rd 100,275 100.0% EastGroup Properties Sep-14
South Hwy 35 Ind 9258 Park South Vw 90,067 100.0% Transwestern Jul-14
Hwy 59/Hwy 90 (Alt) Ind 10401 S Sam Houston Pky W 90,000 0.0% ICO Commercial Sep-14
West Outer Loop Ind 5737 Brittmoore Rd 86,250 0.0% Taten Real Estate Parters Dec-14
Northwest Outliers Ind 22240 Merchants Way 64,313 0.0% EastGroup Properties Jul-14
Hwy 290/Tomball Pky Ind 8790 West Rd 63,000 0.0% EastGroup Properties Sep-14
SUBMARKET BUILDING ADDRESS RBA
%
LEASED DEVELOPER DELIVERED
North Fwy/Tomball Pky 10565 Greens Crossing Blvd 600,750 82.9% Hines Jun-14
North Hardy Toll Road 8039 Humble Westfield Rd 250,200 0.0% K2 Logistics Jun-14
North Outer Loop 121 Esplanade 224,550 0.0% IDI Jun-14
South Hwy 35 11951 Spectrum Blvd 150,000 100.0% Unknown Jun-14
South Hwy 35 7232 Airport Blvd 137,297 100.0% Unknown Dec-13
Hwy 59/Hwy 90(Alt) 13615 S Gessner Rd 123,300 0.0% Stream Realty Partners Apr-14
West Outer Loop 5737 Brittmoore Rd 122,500 100.0% Taten Real Estate Partners Jun-14
North Fwy/Tomball Pky 433 Plaza Verde Dr 120,159 0.0% Hines May-14
North Fwy/Tomball Pky 545 Plaza Verde Dr 120,159 0.0% Hines May-14
North Outer Loop 71 Esplanade 106,700 0.0% IDI Jun-14
North Hardy Toll Road 15892 Diplomatic Plaza Dr 94,074 0.0% EastGroup Properties Jun-14
Hwy 59/Hwy 90(Alt) 13721 S Gessner Rd 85,500 44.5% Stream Realty Partners Apr-14
Northwest Outliers 22110 Merchants Way 67,743 54.1% InSite Realty Partners Apr-14

5. RESEARCH & FORECAST REPORT | Q2 2014 | HOUSTON INDUSTRIAL MARKET
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