Houston Q1 2012 Industrial Outlook 06142012 For Naitonal Site
1. Industrial Outlook
Houston . Q1 2012
Oil and gas sector will
continue to drive leasing and
sales activity into 2012
and beyond.
Vacancy rates remain low due to the rise in exploration, the recovery in
manufacturing, and steady traffic through our region’s ports.
As demand continues to rise, construction elevates throughout Houston.
2.
3. Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 3
Houston industrial overview
Economy
Houston’s industrial market continues to be driven by its resilient economy and international energy emphasis. Trend spotlight…
As a reference, Houston began the year with more than 2.6 million payroll jobs, the highest employment level in
its history. Furthermore, Houston’s unemployment rate dropped significantly, decreasing from 7.8 percent in • There were a total of 1,980 oil and gas drilling rigs working in the United
April 2011 to 6.5 percent in April 2012. The Eagle Ford Shale formation is also bolstering Houston’s economy. States at the beginning of June.
As of March 2012, over 100 rigs have been added over the past 12 months with a total count of 271 rigs. To put
this into perspective, there are only 1,900-2,000 active rigs in the United States. • The Northwest submarket was the most active during the first quarter with
almost one million square-feet absorbed.
Market conditions
The Houston Industrial Real Estate market has continued to outperform other markets of comparable size during • A total of 40 industrial buildings were under construction at the end of the first
first quarter of 2012 . Citywide vacancy rates declined 20 basis points to 4.4 percent as the market absorbed quarter, totaling 4,164,053 square feet. 1,585,848 square feet of them
more than 1.1 million square feet of space. Once again, the Northwest submarket contributed a significant were pre-leased.
amount to overall citywide absorption, mainly a result of the high demand for crane-served freestanding
buildings. Oil Field Services groups, among other energy-related and manufacturing users, have increasingly • Houston should continue to see job growth throughout 2012 and is forecasted
had a need for 5-10 acre tracts of land with sufficient crane capacity, hook height, and wider bays to move their to add 84,600 jobs this year.
equipment. As a result of the enhanced demand for such a unique product, vacancy rates for crane-served
freestanding buildings are among the lowest in industrial product types. • Dow has announced it will invest more than $1.7 billion into its Freeport Plant.
Citywide average asking rents, while growing in some of the stronger submarkets (North, Northwest, • Houston and Washington D.C are the only major metro areas that have
Southwest), have decreased marginally to $4.92/NNN, down one cent from the previous quarter. Despite this recovered all jobs lost during the recession. Houston regained all of its jobs
slight drop, rental rates are projected to remain stable or increase as the demand for quality space increases. three months before Washington D.C., an indicator of its economic fortitude.
Furthermore, new developments in North and Northwest Houston can be expected into 2012 as developers look
to capitalize on improving market conditions.
Total industrial market (owner occupied included)
Supply Construction Vacancy Availability Demand Pricing
Total stock (s.f.) Under construction (s.f.) Rate Trend Rate Trend Q1 2012 net absorption (s.f.) Average rental rate (nnn)
Total industrial market 424,975,124 3,374,427 4.5% 8.4% 1,082,026 $4.92
Warehouse/distribution 312,126,213 3,232,445 5.3% 9.4% 1,138,020 $4.92
Manufacturing 58,253,345 141,982 2.9% 7.7% -333,676 $4.44
Total flex market 36,966,761 51,000 10.8% 14.8% 114,936 $8.51
4. Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 4
Houston industrial overview, cont.
Outlook
Building sales and leasing activity are on the rise. As demand for quality space increases, new Oil and gas service companies will also experience increased activity, resulting in high demand for
developments in Southeast, North, Northwest, and Southwest Houston are probable as developers crane served and crane ready buildings as existing vacancies are scarce. The size of these
look to capitalize on improving market conditions. Absorption numbers should continue to improve buildings is also increasing from 25,000 - 50,000 square feet with 1.5 acres of land to 50,000 –
throughout the year as company operations grow and speculative construction remains limited. The 100,000 square feet with 5 – 10 acres of land. The Eagle Ford Shale phenomenon teamed with
Southeast submarket has the highest total vacancy rate of 5.7 percent and continues to provide high oil prices will sustain the drilling rig boom throughout 2012. Chevron Phillips and Dow
Chemical broke ground on plant expansions in Baytown and Freeport and analysts believe there
opportunities for tenants interested in consolidating operations near the two container terminals. A
could be more built along the Gulf Coast. Increased exploration will continue to create a need for
McGraw Hill Construction forecast for 2012 predicts that commercial building will grow 8 percent
more oil field equipment thus creating more jobs. Houston should continue to see job growth during
nationally. Warehouse and hotels will see the largest percentage increase. Manufacturing buildings 2012 and is forecasted to add 84,600 jobs this year. Concessions could decrease for tenants as a
will increase 4 percent, as the low value of the dollar continues to fund export growth. Landlords are result of a high-demand marketplace. Furthermore, land activity in North and Northwest Houston
still aggressive in pursuing tenants for their developments. Leasing activity should continue to pick has dramatically increased.
up among energy companies and international corporations.
Houston property clock
Peaking Falling
market market
Landlord leverage
Tenant leverage
Rising Bottoming
market market
North,
Northwest,
Southwest
Northeast, Southeast,
CBD Southern
5. Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 5
Houston industrial overview, cont.
Average rental rate YTD net absorption
Pricing trends Demand trends
• The average asking rental rate for available industrial space was $0.41 per square foot NNN per • Demand is being fueled by numerous factors including 1) increasing population; 2) employment
month at the end of the first quarter 2012 in the Houston market area. rate growth; 3) positive trade indicators; 4) increased activity in the oil and gas sector, and ; 5) a
• Lease rates for first generation crane ready buildings are favorable to landlords as demand diversified economy.
outweighs supply. • Net absorption for the Houston industrial market was positive 1,082,026 square feet in the first
quarter of 2012.
6. Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 6
Houston leased industrial market [excluding owner occupied facilities]
Total leased industrial market (excluding owner occupied facilities)
Methodology… Demand Pricing
Supply Vacancy Availability
Q1 2012 net Average rental
total stock (s.f.) rate rate
absorption (s.f.) rate (nnn)
The leased industrial sector excludes owner Total leased industrial market 234,604,140 7.3% 11.7% 1,171,797 $4.90
occupied product from the market’s data set, and Warehouse/distribution 190,413,982 7.8% 12.1% 1,251,391 $4.94
provides a rental equivalent perspective for Manufacturing 25,397,617 6.1% 13.4% -288,676 $4.54
industrial buildings that are leased by tenants.
Buildings can move into and out of this data Total leased flex market 29,812,407 12.4% 17.2% 104,301 $8.59
set based upon being purchased or sold by a
Recent lease transactions
particular user.
Tenant Name Location Submarket Deal type Size (s.f.)
Gulf Winds International, Port Crossing Commerce Center –
Southeast New Lease 247,240
Inc. 1842 S 16th St.
Hempstead Highway Distribution Center –
Daltile Northwest New Lease 116,000
11850 Hempstead Highway
West Little York Crossdock –
Automatic Power Inc. Northwest New Lease 63,000
10810 W Little York Rd.
OldCastle Building Greenspoint Business Center –
North New Lease 61,194
Envelope Inc. 101 Esplanade Blvd.
Equator Plaza –
Transcore Northwest New Lease 55,431
2701 W Sam Houston Parkway
Cornerstone Records Hardy Distribution Center I –
North New Lease 52,000
Management 1521 Greens Rd.
7. Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 7
Houston select sales
Southeast 4554 E Greenwood Rd. Northeast 8800 Citypark Loop
RBA 4,000,000 s.f. RBA 564,248 s.f.
Buyer Wal-Mart Stores, Inc. Buyer First Industrial Real Trust, Inc.
Seller Texas General Land Office Seller Chatham Financial Corp.
Price (p.s.f.) $26.13 Price (p.s.f.) $54.23
Date sold Q2 2011 Date sold Q2 2011
Northeast 9705 Highway 225 Southwest 14623 Fairway Pines
RBA 312,964 s.f. RBA 152,844 s.f.
Buyer Meritex Enterprises Inc. Buyer The Allied Group
Seller Cardinal Industrial Seller Crow Holdings
Price (p.s.f.) $41.70 Price (p.s.f.) $50.00
Date sold Q2 2011 Date sold Q2 2011
Northwest 8017 Pinemont Dr. North 14345 Northwest Freeway
RBA 111,197 s.f. RBA 91,161 s.f.
Buyer Cabot Investment Properties LLC Buyer Par-Pak, Inc.
Seller Colglazier Properties Seller Cotton
Price (p.s.f.) $43.17 Price (p.s.f.) $54.85
Date sold Q4 2011 Date sold Q3 2011
8. Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 8
Appendix
Statistics
Large block availabilities
Construction map
Contacts
9. Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 9
Houston industrial market statistics
YTD Direct net YTD direct net Total net YTD total net YTD total net Direct Direct Total Total Average Under
Inventory
Submarket completion absorption absorption absorption absorption absorption vacancy vacancy vacancy vacancy Asking rent construction /
(s.f.)
(s.f.) (s.f.) (s.f.) (s.f.) (s.f.) (% of stock) (s.f.) (%) (s.f.) (%) ($ p.s.f) NNN renovation (s.f.)
CBD
Warehouse & Distribution 0 40,380,215 172,069 172,069 172,069 172,069 0.4% 1,837,838 4.6% 1,837,838 4.6% $0.37 38,232
Manufacturing 0 7,081,808 42,500 42,500 42,500 42,500 0.6% 225,221 3.2% 225,221 3.2% $0.34 0
Totals 0 52,086,343 219,969 219,969 219,969 219,969 0.4% 2,093,059 4.0% 2,093,059 4.0% $0.36 38,232
North
Warehouse & Distribution 228,238 41,855,873 123,149 123,149 112,733 112,733 0.3% 2,182,128 5.2% 2,203,036 5.3% $0.53 984,973
Manufacturing 0 8,149,038 13,500 13,500 -138,776 -138,776 -1.7% 125,727 1.5% 378,003 4.6% $0.47 0
Totals 228,238 58,518,975 195,270 195,270 32,578 32,578 0.1% 2,700,333 4.6% 2,973,517 5.1% $0.52 984,973
Northeast
Warehouse & Distribution 0 23,375,793 -4,989 -4,989 12,819 12,819 0.1% 834,369 3.6% 834,369 3.6% $0.38 0
Manufacturing 0 5,486,034 -14,500 -14,500 -14,500 -14,500 -0.3% 63,000 1.1% 192,000 3.5% $0.28 0
Totals 0 28,625,958 -47,916 -47,916 -30,108 -30,108 -0.1% 879,471 3.1% 1,008,471 3.5% $0.33 0
Northwest
Warehouse & Distribution 257,835 87,885,470 826,950 826,950 813,350 813,350 0.9% 3,808,067 4.3% 3,965,729 4.5% $0.39 960,297
Manufacturing 0 13,358,894 -6,800 -6,800 -6,800 -6,800 -0.1% 351,968 2.6% 351,968 2.6% $0.44 0
Totals 257,835 111,744,407 936,717 936,717 936,717 936,717 0.8% 4,265,259 3.8% 4,422,921 4.0% $0.40 960,297
Vacancy: Physically vacant space. Total Vacancy includes both direct and sublease space.
Availability: Space being marketed for lease by owner or sublessor, regardless of occupancy. Total Availability includes both direct and sublease space.
Net Absorption: The net change in occupancy over a measured period of time.
Average Asking Rent: Direct monthly values presented on a NNN basis, then weighted by the amount of direct available space in a building.
Statistics reflect the total industrial market, including owner occupied facilities for buildings greater than 20,000 square feet.
10. Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 10
Houston industrial market statistics, cont.
YTD Direct net YTD direct net Total net YTD total net YTD total net Direct Direct Total Total Average Under
Submarket Inventory
completion absorption absorption absorption absorption absorption vacancy vacancy vacancy vacancy Asking rent construction /
(s.f.)
(s.f.) (s.f.) (s.f.) (s.f.) (s.f.) (% of stock) (s.f.) (%) (s.f.) (%) ($ p.s.f) NNN renovation (s.f.)
Southeast
Warehouse & Distribution 0 54,764,215 -18,148 -18,148 -60,990 -60,990 -0.1% 4,217,105 7.7% 4,282,288 7.8% $0.37 1,109,800
Manufacturing 0 11,753,663 0 0 0 0 0.0% 27,120 0.2% 27,120 0.2% $0.54 0
Totals 0 78,666,657 -15,598 -15,598 -58,440 -58,440 -0.1% 4,451,175 5.7% 4,516,358 5.7% $0.38 1,109,800
Southern
Warehouse & Distribution 0 27,774,060 -47,962 -47,962 -47,962 -47,962 -0.2% 944,631 3.4% 986,631 3.6% $0.40 128,000
Manufacturing 0 6,836,189 -202,700 -202,700 -202,700 -202,700 -3.0% 349,912 5.1% 349,912 5.1% $0.32 0
Totals 0 38,632,778 -206,743 -206,743 -206,743 -206,743 -0.5% 1,315,053 3.4% 1,357,053 3.5% $0.39 128,000
Southwest
Warehouse & Distribution 192,431 36,090,587 218,151 218,151 136,001 136,001 0.4% 2,211,404 6.1% 2,302,062 6.4% $0.48 733,449
Manufacturing 0 5,587,719 -13,400 -13,400 -13,400 -13,400 -0.2% 187,275 3.4% 187,275 3.4% $0.51 141,982
Totals 192,431 53,988,210 248,476 248,476 166,326 166,326 0.3% 2,550,963 4.7% 2,641,621 4.9% $0.48 875,431
Market Totals
Warehouse & Distribution 678,504 312,126,213 1,269,220 1,269,220 1,138,020 1,138,020 0.4% 16,035,542 5.1% 16,411,953 5.3% $0.41 3,954,751
Manufacturing 0 58,253,345 -181,400 -181,400 -333,676 -333,676 -0.6% 1,330,223 2.3% 1,711,499 2.9% $0.37 141,982
Totals 678,504 425,007,455 1,365,502 1,365,502 1,082,026 1,082,026 0.3% 18,312,211 4.3% 19,069,898 4.5% $0.41 4,096,733
Vacancy: Physically vacant space. Total Vacancy includes both direct and sublease space.
Availability: Space being marketed for lease by owner or sublessor, regardless of occupancy. Total Availability includes both direct and sublease space.
Net Absorption: The net change in occupancy over a measured period of time.
Average Asking Rent: Direct monthly values presented on a NNN basis, then weighted by the amount of direct available space in a building.
Statistics reflect the total industrial market, including owner occupied facilities
11. Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 11
Houston industrial buildings with large block availabilities
Manufacturing
Manufacturing Warehouse
Warehouse Warehouse
Warehouse Manufacturing Manufacturing Distribution
CBD North Northeast Northwest
3 Blocks 1 Block 1 Block 2 Blocks
797,430 s.f. 286,000 s.f. 298,000 s.f. 675,273 s.f.
6501 Navigation Blvd. – (M) - 286,000 s.f. Airtex Dr. – (M) – 267,150 s.f. 8501 E I-10 Fwy – (M) – 298,000 s.f. 8110 Kempwood Dr. – (W) – 408,000 s.f.
555 Gellhorn Dr. – (M) – 259,540 s.f. 11711 Clay Rd. – (W) – 275,000 s.f.
8833 Citypark Loop – (W) – 254,765 s.f. 10650 Okanella Ln. – (D) – 267,273 s.f.
1200 Lathrop St. – (W) – 251,890 s.f.
Contiguous blocks greater than 250,000 square feet; (M): Manufacturing; (D): Distribution; (F): Flex; (W): Warehouse
12. Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 12
Houston industrial buildings with large block availabilities, cont.
Distribution
Distribution
Warehouse
Distribution
Distribution
Warehouse
Distribution
Distribution
Warehouse
Warehouse
Warehouse Distribution
Southeast Southern Southwest
10 Blocks 0 Blocks 1 Block
4,029,692 s.f. 369,439 s.f.
359 Pike Ct.– (D) – 710,200 s.f. 1601 Gillingham Ln. – (D) – 369,439 s.f.
4906 Broadway St. – (D) – 605,879 s.f.
9501 Bay Area Blvd. – (W) – 480,480 s.f.
359 Old Underwood Rd. – (D) – 450,000 s.f.
4330 Underwood Rd. – (D) – 353,500 s.f.
8855 Citypark Loop – (W) – 346,515 s.f.
5151 Rice Farm Rd. – (D) – 312,000 s.f.
13031 Bay Area Blvd. – (D) – 296,400 s.f.
9401 Bay Area Blvd. – (W) – 283,920 s.f.
10000 Manchester St . – (W) – 270,000 s.f.
4500 Gulf Freeway – (W) – 263,378 s.f.
Contiguous blocks greater than 250,000 square feet; (M): Manufacturing; (D): Distribution; (F): Flex; (W): Warehouse
13. Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 13
Houston construction map Construction in progress
1 CBD - 6503 Navigation, est. delivery Q4 2012
2 North – 3375 Pollock Dr., est. delivery Q4 2012
3 North – Airtex Dr., est. delivery Q3 2012
4 North – 14000 Vickery Dr., est. delivery Q3 2012
2 5 North – 16605 Central Green Blvd., est. delivery Q2 2012
6 North – 2442 Greens Rd., est. delivery Q2 2012
7 North – Kennedy Greens, est. delivery Q2 2012
10 11
14 15 8 North – 12309 Cutten Rd., est. delivery Q3 2012
16 17
18 19 5 6 9 North – 330 Northpark Dr., est. delivery Q2 2012
10 Northwest – 7603 Bluff Point Dr., est. delivery Q2 2012
9
11 Northwest – 7607 Bluff Point Dr., est. delivery Q2 2012
8 3 12 Northwest – 10650 Okanella, est. delivery Q2 2016
4
13 7 13 Northwest – 12223 FM 529, est. delivery Q3 2012
12
14 Northwest – 7645 Railhead, est. delivery Q3 2012
15 Northwest – 1355 Yorkfield Rd., est. delivery Q3 2012
1
28 16 Northwest – 6511 W Little York Rd., est. delivery Q3 2012
20 25 26
21 23 24 27 30 17 Northwest – Windfern and Genard St., est. delivery Q4 2012
22 29
18 Northwest – 12626 N Houston Rosslyn , est. delivery Q2 2012
19 Northwest – 12616 N Houston Rosslyn , est. delivery Q2 2012
20 Southwest – 1001 S Cravens Rd., est. delivery Q1 2013
21 Southwest – 13223 S Gessner Rd., est. delivery Q3 2012
22 Southwest – 13123 S Gessner Rd., est. delivery Q3 2012
23 South – 2725 Park South Vw, est. delivery Q3 2012
24 South – 9250 Park South Vw, est. delivery Q3 2012
25 Southeast – 5200 Gulf Freeway, est. delivery Q4 2012
26 Southeast – 310 W Deerwood Glen Dr., est. delivery Q3 2012
27 Southeast – 405 W Deerwood Glen Dr., est. delivery Q2 2012
28 Southeast – 300 Delta Parkway, est. delivery Q2 2012
29 Southeast – Fairlane St. And Highway 146., est. delivery Q2 2012
30 Southeast – 1445 Sens Rd., est. delivery Q2 2012
14. Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 14
Houston contacts
Research
Lauren Kelley
Research Analyst
+1 713 888 4046
lauren.kelley@am.jll.com
Brokerage
Bob Berry, SIOR
Executive Vice President
+1 713 888 4028
bob.berry@am.jll.com
John Talhelm, SIOR
Senior Vice President
+1 713 888 4058
john.talhelm@am.jll.com
