q2 2014 houston industrial market report

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 REPORTHOUSTON 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 INDUSTRIALMARKET 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 GROWTHANNUAL 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)

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 Renewal2 Expansion3 Sublease4Pre-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



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 AreaDirect

Vacant SF

Direct Vacancy

Rate Sublet

Vacant SF

Sublet Vacancy

RateTotal Vacant

SF

Total Vacancy

Rate2Q14 Net

Absorption1Q14 Net

Absorption2Q14

Completions1Q14

CompletionsSF 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 SUMMARYQ2 2014



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

DATEHwy 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 DELIVEREDNorth 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


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