Q3 2020 | Houston Industrial | Research & Forecast Report
1. Share or view online at colliers.com/houston
Research &
Forecast Report
HOUSTON | INDUSTRIAL
Q3 2020
Lisa Bridges Director of Market Research | Houston
Commentary by Ryan Byrd and Patrick Duffy
Third-quarter economic activity recovered in the U.S. after a
precipitous drop in Q2 as COVID lockdowns in most of the country
were eased. The energy sector, a major contributor to the industrial
industry in Houston, continued to struggle as rig counts dropped to
a historically low level of approximately 270 active rigs in the U.S.,
down 570 from the same time last year and down by over 1,600
from the peak in 2014. Oil and gas prices have been trading in a
range that will not spur new drilling of any significant amount in the
near term. Oil field services firms, a significant component of our
local industrial economy, have been hit very hard.
The Houston industrial market plodded through the 3rd quarter with
a lower than average absorption number of 1.3 million square feet,
but despite continued COVID slowdowns, leasing activity remained
steady. At almost 6 million square feet of leases executed, Houston
remained on par with the previous two quarters. General market
uncertainty caused many tenants (who had the option) to delay
real estate decisions and created a dampening of activity. We
believe that underlying demand is more robust than the absorption
numbers suggest. The lockdowns have accelerated the growth of
e-commerce globally, a significant driver of industrial (distribution)
demand. Amazon remains the most significant player locally at
almost half of the quarter’s absorption. Local tenants in the 40-
60,000 square foot range remained the most active tenant group,
especially in the Northwest and Southwest submarkets. Downward
pressure on rents increased over the quarter, with the North
submarket pressed to give the most concessions.
At the beginning of the year, we were concerned that supply was
outpacing demand; however, Covid and low oil prices led to the
delay of several proposed projects. The trend toward a “flight to
quality” continued to benefit several new deliveries encouraging
a handful of developers who had paused to restart speculative
building. There are approximately 16 million square feet of
institutional-grade projects under construction, and almost 8 million
SF delivered in Q3. We continue to see developers build larger
buildings as Houston moves to more of a big-box market. Of the
Houston’s industrial market continues to expand amid
economic and political uncertainty
Summary Statistics
Houston Industrial Market Q3 2019 Q2 2020 3Q 2020
Vacancy Rate 6.6% 8.1% 8.5%
Net Absorption (SF) 1.7M 3.8M 1.2M
Deliveries (SF) 4.6M 6.7M 4.5M
Under Construction (SF) 19.2M 16.9M 15.2M
Asking Rents
Houston Industrial Market Q3 2019 Q2 2020 Q3 2020
Average $7.43 $7.83 $8.07
Warehouse/Distribution $6.97 $7.22 $7.46
Flex/Service $8.92 $10.14 $10.36
Tech/R&D $10.85 $15.29 $14.77
Big Box $5.03 $6.05 $6.06
Market Indicators
Relative to prior period
Annual
Change
Quarterly
Change
Quarterly
Forecast*
VACANCY
NET ABSORPTION
DELIVERIES
UNDER CONSTRUCTION
*Projected
2. Buyer Composition
Average Price Per SF
$60
$65
$70
$75
$80
$85
$90
$95
$100
$105
U.S. Houston
Average CAP Rate
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
U.S. Houston
`
1.4%
24.9%
2.0%
9.1%
16.1%
4.4% 5.6%
38.7%
26.7%
10.6%
23.5%
24.4%
33.1%
9.0%
14.8%
14.5%
8.9%
20.5%
19.3%
7.0%
58.3%
38.8%
27.7%
69.4%
39.9%
33.4%
53.7%
22.6%
6.3% 6.3% 9.1% 6.9% 6.7%
1.8% 4.5%
2014 2015 2016 2017 2018 2019 2020 YTD
Cross-Border Institutional REIT/Listed Private User/Other
2 Houston Research & Forecast Report | Q3 2020 | Industrial | Colliers International
Sales Activity
Source: Real Capital Analytics Q3 2020
NO. OF PROPERTIES: 29
SALES VOLUME: $165M
AVERAGE $/SF: $78
AVERAGE CAP RATE: 6.9%
UNEMPLOYMENT 8/19 8/20
HOUSTON 4.1% 8.1%
TEXAS 3.7% 7.0%
U.S. 3.8% 13.9%
JOB GROWTH
Annual
Change
# of Jobs
Added
HOUSTON -5.8% -182.8K
TEXAS -4.9% -628.8K
U.S. -6.9% -10.4M
Commentary - continued
24 million combined square feet under construction and deliveries,
almost half is found in fifteen buildings that are 400,000 square
feet or larger.
Along with E-Commerce growth, freezer/cooler requirements
have increased dramatically in the third quarter. More people
working from home and the economic slowdown have created an
increase in home food consumption. Further, this trend is occurring
nationwide, which will spur enhanced activity within Port Houston.
The superior performance during COVID and long-term trends for
industrial CRE have significantly increased investor demand both
in rotation from other CRE asset types and as new funds enter
the market in search of yield. Limited availability and increased
demand have caused middle-market asset CAP rates to compress.
We expect this trend to continue well into 2021 as interest rates
remain low and the economy continues to recover from the
shutdowns.
In the past few weeks, Houston’s industrial market has seen
an uptick in leasing activity and new tenant requirements as
employees have started getting back to the workplace, and students
have gone back to school. As Houston begins to see a pickup in
activity, the industrial market unfortunately still appears caught
between what we hope to be the tail end of Covid and the 2020
elections’ uncertainty. The elections will impact the oil and gas
industry as the two parties have significantly different approaches
to the fossil fuel sector. Hopefully, with the elections behind us
and a potential vaccine roll-out in Q4, we will see the exceptional
uncertainty in the market calm, allowing companies to make more
informed long-term real estate decisions.
3. 33 Houston Research & Forecast Report | Q3 2020 | Industrial | Colliers International
Vacancy & Availability
On an annual basis, Houston’s average industrial vacancy rate
increased 40 basis points from 8.1% in Q2 2020 to 8.5% in Q3
2020 and by 190 basis points annually from 6.6% in Q3 2019. The
increase in vacancy is due to the addition of 191 new buildings
added to inventory since the begining of 2020. Only 45% of the
29.3M SF of new inventory has been leased since delivered.
At the end of the third quarter, Houston had 51.6M SF of vacant
industrial space for direct lease and an additional 1.7M SF of vacant
sublease space. Among the major industrial corridors, the Inner
Loop Corridor, Liberty County and the South Corridor have the
lowest vacancy rates of 5.7%, 0.8% and 5.1%, respectively. The
submarket with the largest percentage of vacant space is the North
Corridor, which has a 10.0% vacancy rate.
Absorption & Demand
Houston’s industrial market posted 1.2M SF of positive net
absorption in the Q3 2020, a decrease of 68.4% over the quarter.
Some of the tenants that contributed to absorption by relocating or
expanding in Q3 2020 include Amazon moving into 443,500 SF
in the Northwest Corridor and also into 200,400 SF in the South
Corridor, American Furniture Warehouse moving into it’s 498,700
SF warehouse in the Northwest Corridor and Goodman Air
Conditioning and Heating moving into 312,640 SF in the Northwest
Corridor.
The majority of Q3 2020 positive net absorption occurred in the
North Corridor, recording 1.5M SF. All of the major industrial
corridors recorded positive net absorption in Q3, with the exception
of the Inner Loop, Southeast and Southwest Corridors.
Rental Rates
According to our data service provider (CoStar Property), Houston’s
citywide average quoted industrial rental rate for all product
types increased from $7.83 per SF NNN to $8.07 per SF NNN
over the quarter. According to Colliers’ internal data, actual lease
transactions are in the $4.56 – $5.16 per SF NNN range for newer
bulk industrial spaces. In contrast, flex rates range from $7.20 to
$10.80 per SF NNN depending on the existing improvements or
the allowance provided for tenant improvements and the age and
location of the property.
Based on data from our data service provider, the average quoted
NNN rental rates by property type are as follows: $7.46 per SF
for Warehouse Distribution space, $10.36 per SF for Flex/Service
space, Tech/R&D space averaging $14.77 per SF and $6.06 per SF
for Big Box.
4. 4 Houston Research & Forecast Report | Q3 2020 | Industrial | Colliers International44
Under Construction
15.2M SF of industrial space is under construction in Houston, with 38% of this space pre-leased. The largest project under construction
is a 2,165,000-SF distribution warehouse for Ross Stores Inc., located in Brookshire, TX. The majority of projects under construction
are located in the Southwest, North and Southeast Corridor submarkets. Below is a partial list of the largest buildings currently under
construction.
Q3 2020 Industrial Under Construction - 300,000 SF or greater
BUSINESS PARK/ADDRESS SUBMARKET RBA
% LEASED/
OWNED
DEVELOPER/CONTRACTOR
DELIVERY
DATE
BUILDING DESCRIPTION
31207 Kingsland Blvd Sugar Land/Brookshire 2,165,000 100% Ross Stores Inc Feb-21 Ross Distribution Center
Cedar Port Trade Center East-Southeast Far 1,021,440 0% Hunt Southwest Real Estate Mar-21 Spec Distribution
Amazon - 10507 Harlem Rd Sugar Land 850,000 100% Trammell Crow Company Aug-21 BTS Distribution
Empire West 3 Northwest Outlier 750,775 0% Stream Realty Mar-21 Spec Distribution
The Uplands Twinwood DC 1 Sugar Land 737,630 0% Clay Development &
Construction
Sep-21 Spec Distribution
Generation Park Northeast Hwy 90 648,720 0% Lincoln Property Company May-21 Spec Distribution
1919 S Fm 565 Rd East-Southeast Far 604,800 100% DVO Oct-20 BTS Katoen Natie
Boulevard Oaks Business Park
- Bldg 8
Southwest Far 534,440 0% Hines Dec-20 Spec Distribution
625 Independence Pky - Bldg B East-Southeast Far 414,900 60.8% Molto Properties Oct-20 Spec Distribution
Ella Logistics Center North Fwy/Tomball Pky 358,567 0% Hines Dec-20 Spec Distribution
Rankin 45 Distribution Center North Hardy Toll Road 356,236 0% Trammel Crow Company Oct-20 Spec Warehouse
Sugar Land Crossroads Sugar Land 326,792 0% Transwestern Jan-21 Spec Warehouse
15130 Market St Rd - Bldg 1 East I-10 Outer Loop 316,172 0% National Property Holdings LP Dec-20 Spec Distribution
Q3 2020 Industrial Lease Transactions over 75,000 SF
BUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE
Underwood Port Logistics Center East-Southeast Far 400,000 Pioneer1
Sep-20
8833 Citypark Loop Northeast Hwy 90 254,160 DHL3
Sep-20
Monument Business Park - Bldg B East-Southeast Far 252,203 Slay Industries1
Sep-20
560 E Richey Rd North Hardy Toll Rd 156,505 MiTek1
Aug-20
Beltway Crossing Business Park - Bldg 2 Hwy 59/Hwy 90 141,440 Lawless Group1
Aug-20
Thompson 10 Logistics Center - Bldg 1 East-Southeast Far 130,074 SLM1
Sep-20
1031 Bammel Rd - Bldg G North Hardy Toll Rd 125,000 Beacon Roofing Supply, Inc.3
Aug-20
Bayou Bend Business Park - Bldg 1 Southwest Far 107,390 Niagra3
Aug-20
Carson 249 Northwest 104,622 ONUS Global Fulfullment1
Sep-20
Bayport North Logistics Center I East-Southeast Far 102,863 Frederick Trucking1
Aug-20
Parc 59 - Bldg A Northeast Hwy 90 82,800 Kalera1
Jul-20
15500 Vickery Dr - Bldg 8 North Hardy Toll Rd 75,200 Legacy Paper2,4
Aug-20
Leasing Activity
According to our data service provider (CoStar Property), Houston’s industrial leasing activity increased over the quarter from 5.4M SF
in Q2 2020 to 5.9M SF in Q3 2020. The majority of third quarter transactions consisted of leases for 50,000 SF or less; however, there
were several larger deals that occurred. The table below highlights some of the larger transactions that closed in Q3 2020.
1
Direct/New 2
Colliers International Transaction 3
Renewal or Expansion 4
Sublet
7. 7 Houston Research & Forecast Report | Q3 2020 | Industrial | Colliers International7
Our philosophy
revolves around the fact
that the best
possible results come
from linking our global
enterprise with
local advisors who
understand your
business, your market,
and how to
integrate real estate
into a successful
business strategy.
C O L L I E R S I N T E R N A T I O N A L G L O B A L L O C A T I O N S
COMMERCIAL REAL ESTATE SECTORS REPRESENTED
OFFICE
INDUSTRIAL
LAND
RETAIL
HEALTHCARE
MULTIFAMILY
HOTEL
$129BTRANSACTION VALUE
2BSF UNDER MANAGEMENT
$3.5BIN REVENUE
443OFFICES
18,700PROFESSIONALS
430ACCREDITED MEMBERS
68COUNTRIES
SIOR
ADVANTAGE
Colliers International (NASDAQ, TSX: CIGI) is a leading real estate professional services
and investment management company. With operations in 68 countries, our more than
15,000 enterprising professionals work collaboratively to provide expert advice to
maximize the value of property for real estate occupiers, owners and investors. For
more than 25 years, our experienced leadership, owning approximately 40% of our
equity, has delivered compound annual investment returns of almost 20% for
shareholders. In 2019, corporate revenues were more than $3.0 billion ($3.5 billion
including affiliates), with $33 billion of assets under management in our investment
management segment. Learn more about how we accelerate success at
corporate.colliers.com, Twitter @Colliers or LinkedIn.
Colliers professionals think differently, share great ideas and offer thoughtful and
innovative advice to accelerate the success of its clients. Colliers has been ranked
among the top 100 global outsourcing firms by the International Association of
Outsourcing Professionals for 13 consecutive years, more than any other real estate
services firm. Colliers is ranked the number one property manager in the world by
Commercial Property Executive for two years in a row.
PROPERTY POSITIONING
& MARKETING
REAL ESTATEINVESTMENT
VALUATION&
ADVISORY
CORPORATE
SOLUTIONS
MANAGEMENT
REALESTATE
REPRESENTATION
LANDLORD
REPRESENTATION
TENANT
LOCA
TION
INTELLIGENCE
MA
RKET
RESEARCH&
CAPITAL
MARKETS
PROJECT
MANAGEMENT
COLLIERS
SPECIALIZATIONS
and
REAL ESTATE SERVICE
REPRESENTATION
DATACENTERS
HE
ALTHCARE
HOTELS & HOSPITALITY SERVICES
IND
USTRIAL
LAND
HOUSING&MULTIFAMILY
SER
VICES
MARINA, LEISURE & GOLF COURSE
OFFICE
RETAIL
SPECIALPURPOSE