Resilience and sustained growth. That’s what Lee & Associates says that the Houston industrial distribution market demonstrated during a challenging first quarter of 2024.
In fact, the Houston market bucked the national trend, seeing its industrial distribution vacancy rate fall during the first three months of 2024. That’s unusual today, with many markets across the country seeing industrial vacancy rates rise during the beginning of the year.
That’s the positive news from the first quarter Houston Industrial Distribution Market report released earlier this month from Lee & Associates.
What accounts for the Houston market’s resilience even during challenging times? Lee & Associates pointed to Houston’s strong transportation and distribution infrastructure as a reason for the industrial distribution market’s continued resilience.
The Houston market did see a slight decrease in new direct-space leasing for facilites with more than 350,000 square feet. But tenants requiring more than 500,000 square feet were active enough to make up for this.
Overall, the Houston industrial distribution market saw more than 5.8 million square feet of leasing activity.
Notable leases included Hinton Lumber renewing its 450,000 square feet at Independence Logistics
Park and Essendant renewing 240,000 square feet at 7677 Pinemont Drive.
The Northwest submarket outperformed all other submarkets with 2.3 million square feet of new leases during the first quarter 2024, followed by the Northeast and North submarkets with 1.1 million square feet and 939,690 square feet, respectively.
Large occupiers leasing 500,000 square feet plus represented 42.7% of the market while tenants leasing between 250,000 to 499,999 square feet represented 12.3% of the market.
Chart courtesy of Lee & Associates.
Tenants include Grainger for 1.2 million square feet at Roberts Ranch Business Park in the Northwest and United Airlines for 509,600 square feet at 59 Logistics Center in the Northeast submarkets.
There have been some headwinds, though, in this market. Lee & Associates reported that net absorption fell to slightly more than 2.33 million square feet in the first quarter. That is down from more than 4.29 million square feet of net absorption in the Houston industrial distribution market in the fourth quarter of 2023.
Most occupancy gains throughout the first quarter of 2024 occurred in the Northwest, Northeast, Southeast and Far West submarkets, where more than 81.9% of Houston’s net collective gains were registered.
Almost all the positive absorption recorded across the market was fueled by newly delivered products, along with pre-leasing activity.
The number of new deliveries fell, too. Lee & Associates reported that the Houston market saw the delivery of more than 3.94 million square feet of new industrial distribution space in the fourth quarter. That is down from a much higher 9.26 million square feet of deliveries during the previous quarter.
The Southeast market emerged as a significant contributor to projects under construction, notably those exceeding 350,000 square feet.
Although the delivery of new inventory saw a temporary slowdown at the start of the year, Lee & Associates said that it expects the industrial distribution market to rebound as ongoing construction projects near completion by the end of 2024.
C.E. Erwin III, principal of Lee & Associates Houston’s industrial division, said that the Houston region continues to attract tenants seeking efficient distribution centers. This, he said, should help guarantee continued growth in the area’s industrial real estate sector.