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.
Industrial Outlook Houston . Q1 2012
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. 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 April 2011 to 6.5 percent in April 2012. The Eagle Ford Shale formation is also bolstering Houston’s economy. 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. Market conditions The Houston Industrial Real Estate market has continued to outperform other markets of comparable size during first quarter of 2012 . Citywide vacancy rates declined 20 basis points to 4.4 percent as the market absorbed more than 1.1 million square feet of space. Once again, the Northwest submarket contributed a significant 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 had a need for 5-10 acre tracts of land with sufficient crane capacity, hook height, and wider bays to move their 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. Citywide average asking rents, while growing in some of the stronger submarkets (North, Northwest, Southwest), have decreased marginally to $4.92/NNN, down one cent from the previous quarter. Despite this slight drop, rental rates are projected to remain stable or increase as the demand for quality space increases. 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
Trend spotlight… • There were a total of 1,980 oil and gas drilling rigs working in the United
States at the beginning of June.
• The Northwest submarket was the most active during the first quarter with almost one million square-feet absorbed.
• A total of 40 industrial buildings were under construction at the end of the first
quarter, totaling 4,164,053 square feet. 1,585,848 square feet of them were pre-leased.
• Houston should continue to see job growth throughout 2012 and is forecasted to add 84,600 jobs this year.
• Dow has announced it will invest more than $1.7 billion into its Freeport Plant.
• Houston and Washington D.C are the only major metro areas that have recovered all jobs lost during the recession. Houston regained all of its jobs three months before Washington D.C., an indicator of its economic fortitude.
Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 4
Houston industrial overview, cont.
Houston property clock
Peaking market
Bottoming market
Land
lord l
ever
age Tenant leverage
Outlook Building sales and leasing activity are on the rise. As demand for quality space increases, new developments in Southeast, North, Northwest, and Southwest Houston are probable as developers look to capitalize on improving market conditions. Absorption numbers should continue to improve throughout the year as company operations grow and speculative construction remains limited. The Southeast submarket has the highest total vacancy rate of 5.7 percent and continues to provide opportunities for tenants interested in consolidating operations near the two container terminals. A McGraw Hill Construction forecast for 2012 predicts that commercial building will grow 8 percent nationally. Warehouse and hotels will see the largest percentage increase. Manufacturing buildings will increase 4 percent, as the low value of the dollar continues to fund export growth. Landlords are still aggressive in pursuing tenants for their developments. Leasing activity should continue to pick up among energy companies and international corporations.
Oil and gas service companies will also experience increased activity, resulting in high demand for crane served and crane ready buildings as existing vacancies are scarce. The size of these buildings is also increasing from 25,000 - 50,000 square feet with 1.5 acres of land to 50,000 – 100,000 square feet with 5 – 10 acres of land. The Eagle Ford Shale phenomenon teamed with 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 could be more built along the Gulf Coast. Increased exploration will continue to create a need for more oil field equipment thus creating more jobs. Houston should continue to see job growth during 2012 and is forecasted to add 84,600 jobs this year. Concessions could decrease for tenants as a result of a high-demand marketplace. Furthermore, land activity in North and Northwest Houston has dramatically increased.
Southeast, Southern
North, Northwest, Southwest
Northeast, CBD
Falling market
Rising market
Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 5
Pricing trends
• The average asking rental rate for available industrial space was $0.41 per square foot NNN per month at the end of the first quarter 2012 in the Houston market area.
• Lease rates for first generation crane ready buildings are favorable to landlords as demand outweighs supply.
Houston industrial overview, cont.
YTD net absorption
Demand trends
• Demand is being fueled by numerous factors including 1) increasing population; 2) employment rate growth; 3) positive trade indicators; 4) increased activity in the oil and gas sector, and ; 5) a diversified economy.
• Net absorption for the Houston industrial market was positive 1,082,026 square feet in the first quarter of 2012.
Average rental rate
Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 6
Methodology…
The leased industrial sector excludes owner occupied product from the market’s data set, and provides a rental equivalent perspective for industrial buildings that are leased by tenants. Buildings can move into and out of this data set based upon being purchased or sold by a particular user. Recent lease transactions
Tenant Name Location Submarket Deal type Size (s.f.)
Gulf Winds International, Inc.
Port Crossing Commerce Center – 1842 S 16th St. Southeast New Lease 247,240
Daltile Hempstead Highway Distribution Center – 11850 Hempstead Highway Northwest New Lease 116,000
Automatic Power Inc. West Little York Crossdock – 10810 W Little York Rd. Northwest New Lease 63,000
OldCastle Building Envelope Inc.
Greenspoint Business Center – 101 Esplanade Blvd. North New Lease 61,194
Transcore Equator Plaza – 2701 W Sam Houston Parkway Northwest New Lease 55,431
Cornerstone Records Management
Hardy Distribution Center I – 1521 Greens Rd. North New Lease 52,000
Total leased industrial market (excluding owner occupied facilities)
Supply total stock (s.f.)
Vacancy rate
Availability rate
Demand Q1 2012 net
absorption (s.f.)
Pricing Average rental
rate (nnn)
Total leased industrial market 234,604,140 7.3% 11.7% 1,171,797 $4.90
Warehouse/distribution 190,413,982 7.8% 12.1% 1,251,391 $4.94
Manufacturing 25,397,617 6.1% 13.4% -288,676 $4.54
Total leased flex market 29,812,407 12.4% 17.2% 104,301 $8.59
Houston leased industrial market [excluding owner occupied facilities]
Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 7
Southwest 14623 Fairway Pines
RBA 152,844 s.f.
Buyer The Allied Group
Seller Crow Holdings
Price (p.s.f.) $50.00
Date sold Q2 2011
Northeast 9705 Highway 225
RBA 312,964 s.f.
Buyer Meritex Enterprises Inc.
Seller Cardinal Industrial
Price (p.s.f.) $41.70
Date sold Q2 2011
North 14345 Northwest Freeway
RBA 91,161 s.f.
Buyer Par-Pak, Inc.
Seller Cotton
Price (p.s.f.) $54.85
Date sold Q3 2011
Houston select sales
Northeast 8800 Citypark Loop
RBA 564,248 s.f.
Buyer First Industrial Real Trust, Inc.
Seller Chatham Financial Corp.
Price (p.s.f.) $54.23
Date sold Q2 2011
Northwest 8017 Pinemont Dr.
RBA 111,197 s.f.
Buyer Cabot Investment Properties LLC
Seller Colglazier Properties
Price (p.s.f.) $43.17
Date sold Q4 2011
Southeast 4554 E Greenwood Rd.
RBA 4,000,000 s.f.
Buyer Wal-Mart Stores, Inc.
Seller Texas General Land Office
Price (p.s.f.) $26.13
Date sold Q2 2011
Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 8
Statistics
Large block availabilities
Construction map
Contacts
Appendix
Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 9
Houston industrial market statistics
Vacancy: Physically vacant space. Total Vacancy includes both direct and sublease space. Availability: Space being marketed for lease by owner or sublessor, regardless of occupancy. Total Availability includes both direct and sublease space. Net Absorption: The net change in occupancy over a measured period of time. Average Asking Rent: Direct monthly values presented on a NNN basis, then weighted by the amount of direct available space in a building. Statistics reflect the total industrial market, including owner occupied facilities for buildings greater than 20,000 square feet.
Submarket YTD
completion (s.f.)
Inventory (s.f.)
Direct net absorption
(s.f.)
YTD direct net absorption
(s.f.)
Total net absorption
(s.f.)
YTD total net absorption
(s.f.)
YTD total net absorption
(% of stock)
Direct vacancy
(s.f.)
Direct vacancy
(%)
Total vacancy
(s.f.)
Total vacancy
(%)
Average Asking rent
($ p.s.f) NNN
Under construction /
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% $0.40 960,297
Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 10
Houston industrial market statistics, cont.
Vacancy: Physically vacant space. Total Vacancy includes both direct and sublease space. Availability: Space being marketed for lease by owner or sublessor, regardless of occupancy. Total Availability includes both direct and sublease space. Net Absorption: The net change in occupancy over a measured period of time. Average Asking Rent: Direct monthly values presented on a NNN basis, then weighted by the amount of direct available space in a building. Statistics reflect the total industrial market, including owner occupied facilities
Submarket
YTD completion
(s.f.)
Inventory (s.f.)
Direct net absorption
(s.f.)
YTD direct net absorption
(s.f.)
Total net absorption
(s.f.)
YTD total net absorption
(s.f.)
YTD total net absorption
(% of stock)
Direct vacancy
(s.f.)
Direct vacancy
(%)
Total vacancy
(s.f.)
Total vacancy
(%)
Average Asking rent
($ p.s.f) NNN
Under construction /
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
Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 11
Houston industrial buildings with large block availabilities
CBD
3 Blocks
797,430 s.f.
6501 Navigation Blvd. – (M) - 286,000 s.f.
555 Gellhorn Dr. – (M) – 259,540 s.f.
8833 Citypark Loop – (W) – 254,765 s.f.
1200 Lathrop St. – (W) – 251,890 s.f.
Manufacturing Manufacturing
Warehouse Warehouse Manufacturing
Warehouse Warehouse Distribution
Contiguous blocks greater than 250,000 square feet; (M): Manufacturing; (D): Distribution; (F): Flex; (W): Warehouse
North
1 Block
286,000 s.f.
Airtex Dr. – (M) – 267,150 s.f.
Northeast
1 Block
298,000 s.f.
8501 E I-10 Fwy – (M) – 298,000 s.f.
Northwest
2 Blocks
675,273 s.f.
8110 Kempwood Dr. – (W) – 408,000 s.f.
11711 Clay Rd. – (W) – 275,000 s.f.
10650 Okanella Ln. – (D) – 267,273 s.f.
Manufacturing
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
Contiguous blocks greater than 250,000 square feet; (M): Manufacturing; (D): Distribution; (F): Flex; (W): Warehouse
Southeast
10 Blocks
4,029,692 s.f.
359 Pike Ct.– (D) – 710,200 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.
Southern
0 Blocks
Southwest
1 Block
369,439 s.f.
1601 Gillingham Ln. – (D) – 369,439 s.f.
Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 13
Houston construction map
14 15
16 17 18
10
19
20 21
22
Construction in progress
CBD - 6503 Navigation, est. delivery Q4 2012
North – 3375 Pollock Dr., est. delivery Q4 2012
North – Airtex Dr., est. delivery Q3 2012
North – 14000 Vickery Dr., est. delivery Q3 2012
North – 16605 Central Green Blvd., est. delivery Q2 2012
North – 2442 Greens Rd., est. delivery Q2 2012
North – Kennedy Greens, est. delivery Q2 2012
North – 12309 Cutten Rd., est. delivery Q3 2012
North – 330 Northpark Dr., est. delivery Q2 2012
Northwest – 7603 Bluff Point Dr., est. delivery Q2 2012
Northwest – 7607 Bluff Point Dr., est. delivery Q2 2012
Northwest – 10650 Okanella, est. delivery Q2 2016
Northwest – 12223 FM 529, est. delivery Q3 2012
Northwest – 7645 Railhead, est. delivery Q3 2012
Northwest – 1355 Yorkfield Rd., est. delivery Q3 2012
Northwest – 6511 W Little York Rd., est. delivery Q3 2012
Northwest – Windfern and Genard St., est. delivery Q4 2012
Northwest – 12626 N Houston Rosslyn , est. delivery Q2 2012
Northwest – 12616 N Houston Rosslyn , est. delivery Q2 2012
Southwest – 1001 S Cravens Rd., est. delivery Q1 2013
Southwest – 13223 S Gessner Rd., est. delivery Q3 2012
Southwest – 13123 S Gessner Rd., est. delivery Q3 2012
South – 2725 Park South Vw, est. delivery Q3 2012
South – 9250 Park South Vw, est. delivery Q3 2012
Southeast – 5200 Gulf Freeway, est. delivery Q4 2012
Southeast – 310 W Deerwood Glen Dr., est. delivery Q3 2012
Southeast – 405 W Deerwood Glen Dr., est. delivery Q2 2012
Southeast – 300 Delta Parkway, est. delivery Q2 2012
Southeast – Fairlane St. And Highway 146., est. delivery Q2 2012
Southeast – 1445 Sens Rd., est. delivery Q2 2012
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26
27
28
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29 30
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5 4
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11
12
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Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 14
Houston contacts
Research Lauren Kelley Research Analyst +1 713 888 4046 [email protected] Brokerage Bob Berry, SIOR Executive Vice President +1 713 888 4028 [email protected] John Talhelm, SIOR Senior Vice President +1 713 888 4058 [email protected]
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