1. www.colliers.com/houston
Q3 2010 | INDUSTRIAL MARKET
Houston Industrial Market Strengthening
Houston’s industrial market fundamentals continue to strengthen, with 1.8M SF of positive net absorption in
the third quarter bringing the year-to-date total to 4.4M SF, an improvement from the positive net absorption
of 1.6M SF recorded through the third quarter last year. Occupancy also posted a slight gain with the
citywide average at 93.9% in the third quarter, up from 93.2% at this time last year. While quoted rental rates
for industrial space fell below levels for the same period last year, rental rates remained stable from the
previous quarter. On the leasing front, nineteen leases over 100,000 SF were signed year-to-date through
the third quarter, with six leases over 200,000 SF. A significant boost to the market’s stabilization has been
disciplined curtailment of new speculative construction activity, with only 218,918 SF in the construction
pipeline at the close of 3Q10, compared to 1.7M SF under construction at this time last year.
Looking forward, Houston’s industrial sector is expected to improve gradually as key economic drivers move
towards recovery. The Port of Houston has been instrumental in Houston's development as a center of
international trade. Over 100 steamship lines offer service linking Houston with 1,053 ports in 203 countries.
It is also home to a $15 billion petrochemical complex, the largest in the nation and second largest
worldwide. Houston is a key player in the Break-bulk and Logistics sector. In October, a record 3,800
people attended the Annual Break-bulk Americas Transportation Conference and Exhibition, hosted by The
Port of Houston Authority at the George R. Brown Convention Centre. Looking forward, The Port of Houston
Authority was recently selected to host the American Association of Port Authorities annual convention in
2014, which will coincide with the 100th anniversary celebration of the official opening of the Houston Ship
Channel.
According to the Texas Labor Market Review, Texas MSA’s have experienced job gains in six out of eight
months so far this year. Although Houston isn’t the top performing MSA in Texas, Houston continues to be
recognized as one of the strongest metros in the U.S. for business activity, with the employment sector
reporting marked improvement from this time last year. In the 12 months ending in August 2010, Houston’s
job loss totaled 18,300, significantly below the 100,000 jobs lost in 2009, with the local MSA projected to end
2010 with positive job growth. The area’s above-average population growth spurs the need for increased
services, which in turn contributes positively to Houston’s strong long-term outlook.
3Q-09 3Q-10
QUARTERLY NET ABSORPTION
1,311,711 SF 1,855,008 SF
YEAR-TO-DATE NET ABSORPTION
1,635,891 SF 4,436,683 SF
CITYWIDE AVERAGE QUOTED
RENTAL RATE NNN
$5.84/SF $5.27/SF
CITYWIDE AVERAGE
INDUSTRIAL VACANCY
6.8% 6.4%
QUARTERLY DELIVERIES
249,244 SF 330,148 SF
YEAR-TO-DATE DELIVERIES
6,055,929 SF 1,979,584 SF
UNDER CONSTRUCTION
2,583,667 SF 218,918 SF
RESEARCH & FORECAST REPORT
HOUSTON INDUSTRIAL MARKET
JOB GROWTH & UNEMPLOYMENT
MARKET INDICATORS
08/ 09 08/10
HOUSTON -0.4% job growth
900 jobs lost
UNEMPLOYMENT 8.2% 8.7%
TEXAS 1.3% job growth
129,000 jobs gained
UNEMPLOYMENT 8.0% 8.3%
U.S. -0.1% job growth
183,000 jobs lost
UNEMPLOYMENT 9.7% 9.6%
2%
3%
4%
5%
6%
7%
8%
Q3-08
Q4-08
Q1-09
Q2-09
Q3-09
Q4-09
Q1-10
Q2-10
Q3-10
-1,000,000
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
ABSORPTION
NEW SUPPLY
VACANCY
ABSORPTION, NEW SUPPLY & VACANCY RATES
2. RESEARCH & FORECAST REPORT | Q3 2010 | HOUSTON INDUSTRIAL MARKET
Occupancy & Availability
Houston’s industrial market averaged
93.9% occupancy in the third quarter, 60
basis points (bps) higher than the previous
quarter, and 70 bps above the 93.2%
recorded in the same quarter last year.
Over the past eight quarters, Houston’s
industrial market has consistently
maintained occupancy levels above 90%
for all major corridors, outperforming all
other commercial real estate property
sectors citywide.
At the end of the third quarter, Houston
posted 29.3M SF of vacant industrial
space citywide. Among the major
industrial corridors, the Northwest held the
largest amount of vacant space with 7.8M
SF (6.0% vacancy), followed by the
Southeast with 6.3M SF vacant (7.8%
vacancy), the Southwest with 4.3M SF
vacant (6.8% vacancy), and the North with
4.3M SF vacant (6.5% vacancy).
Developers have responded to current
Absorption & Demand
Houston’s industrial market posted
positive net absorption of 1.9M SF in the
second quarter, an improvement over the
positive net absorption of 1.3M SF in the
same quarter last year. This marked the
fourth consecutive quarter of gains,
bringing the year-to-date positive net
absorption to 4.4M SF. By comparison,
the annual net absorption for all four
quarters of 2009 was 1.8M.
Among Houston’s major industrial
corridors, the Northwest and Southwest
continued to outperform other industrial
sectors at midyear. The Northwest
posted the highest positive net absorption
for the third quarter with 979,302 SF,
and 2.2M SF year-to-date. The North
followed with positive net absorption of
669,127 SF in the third quarter, and
850,697 SF year-to-date. The
Southwest posted 123,757 SF of positive
net absorption, with 1.9M SF year-to-
2010 INDUSTRIAL LEASES
Igloo Products Corp***
777 Igloo Road
May-10 914,195 SF
Ashley Furniture*
Airtex Industrial Center
Mar-10 303,000 SF
Frontier Logistics
3005 State Highway 225
Feb-10 300,000 SF
Trans-Hold
8905 Spikewood
Jun-10 251,600 SF
Gulf Winds International**
South Loop Business Park
Jun-10 212,961 SF
Williamsport Distribution Center
11503 Highway 225
Apr-10 210,000 SF
Portsmith
21202 Park Row
Aug-10 180,000 SF
COLLIERS INTERNATIONAL | P. 2
Developers have responded to current
market conditions by halting all major
speculative industrial construction projects
in Houston, leaving only 208,918 SF in the
construction pipeline at the end of the third
quarter. The largest project under
construction is a 34,125-SF office/
warehouse in the West Outer Loop
scheduled for delivery by December 2010.
Speculative construction is expected to
remain limited over the next 6 to 12
months.
Rental Rates
Houston’s average quoted industrial rental
rates decreased by 0.4% between
quarters, and by 10.8% on a year-over-
year basis. The overall $5.27 NNN/SF in
the third quarter fell from $5.84 NNN/SF at
this time last year. By property type,
warehouse distribution space was $4.76
NNN/SF (down $0.14/SF); bulk space
stood at $4.23 NNN/SF (up $0.25/SF); and
flex space was $7.96 NNN/SF (up
$0.04/SF).
date.
Major tenant move-ins contributing to net
absorption gains in the third quarter
included Portsmith’s 180,000-SF lease at
21202 Park Row (Northwest), and
Furniture Brands’ 109,386-SF lease at
Airtex Industrial Center (North).
Leasing
Houston’s industrial market recorded
nineteen (19) leases over 100,000 SF –
including six (6) leases over 200,000 SF
– year-to-date through the third quarter
2010, which includes the 914,195-SF
sale-leaseback for Igloo Products.
Overall, industrial leasing activity
reached 4.0M SF in the third quarter,
compared to 5.0M SF recorded in the
same quarter last year. For a select list
of Houston’s top industrial leases signed
to date, please see the column at left.
Aug-10 180,000 SF
FedEx
Ellington Trade Center I
Jun-10 146,792 SF
Xpedx***
10300 North Loop Freeway
Apr-10 139,871 SF
Exel**
8607 Citypark Loop
May-10 127,900 SF
Transportation Consultants
Bay Area Business Park
July-10 120,000 SF
CVS Pharmacy**
301 S. Trade Center Parkway
Jun-10 113,175 SF
Furniture Brands*
Airtex Industrial Center
July-10 109,386 SF
*Colliers International transaction
** Renewal
*** Sale-Leaseback
3. RESEARCH & FORECAST REPORT | Q3 2010 | HOUSTON INDUSTRIAL MARKET
COLLIERS INTERNATIONAL | P. 3
Sales Activity
Houston’s industrial investment activity
remained below pre-recession levels
with year-to-date activity through the
third quarter posting $93.8M in total
volume with a combined total of 5.0
MSF and an average $44/SF.
Although industrial properties less than
50,000 SF continued to account for
the majority of transactions to date,
some larger Q3 sales included:
Albert H Powers acquired the 62,246-
SF Cummins Southern Plains
warehouse located at 7045 N Loop
Fwy E from Charter SW Seven, LP.
Built in 2001, the property sold for
$8.67M or $139/SF.
HOUSTON INDUSTRIAL MARKET SUMMARY
Year-to-date 2010
Total volume: $93.8M
# of transactions:
76
Total SF: 5,101,014
Price/SF: $44
Average Cap: 8.0%
Source: Costar Comps
PGI International Manufacturing
16101 Vallen Drive
HOUSTON INDUSTRIAL INVESTMENT SALES
Western Well Tool, Inc. acquired the
174,139-SF 16101 Vallen Drive
manufacturing warehouse from
Khoshbin Company for $13M or
$75/SF in an owner-user sale.
Donovan Investment Co. acquired the
98,850-SF 19423 Aldine Westfield
warehouse for $9.7M or $98/SF from
A.E.N. Farrell, LP. The building is
100% occupied by LKQ Corporation.
Granite Properties Inc. began
marketing its entire industrial portfolio
during the third quarter. The Dallas-
based developer is selling the 17-
property portfolio, which includes 14
single and multi-tenant properties in
Houston which contain a total of 1.95M
SF and are 89.3 percent leased.
Market Rentable Area
Direct
Vacant SF
Direct
Vacancy
Rate
Sublet
Vacant SF
Sublet
Vacancy
Rate
Total
Vacant SF
Total
Vacancy
Rate
3rd Qtr Net
Absorption
YTD Net
Absorption
3rd Qtr
Completions
YTD
Completions
SF Under
Construction
Greater Houston Total 473,516,005 29,290,284 6.2% 762,210 0.2% 30,125,025 6.4% 1,855,008 4,436,683 330,148 1,979,584 218,918
NW Inner Loop 11,447,633 553,590 4.8% 53,034 0.5% 679,154 5.5% (9,202) 110,455 - - -
CBD 34,380,936 2,171,501 6.3% - 0.0% 2,171,501 6.3% (252,607) (123,264) - - -
North Inner Loop 5,619,637 532,738 9.5% - 0.0% 532,739 9.5% 30,500 (56,032) - - -
SW Inner Loop 9,079,323 218,838 2.4% 13,164 0.1% 232,002 2.6% 73,722 155,428 - - -
Total Inner Loop 60,527,529 3,476,667 5.7% 66,198 0.1% 3,615,396 6.0% (157,587) 86,587 - - -
North Fwy/Tomball Pky 13,231,183 1,229,979 9.3% 9,975 0.1% 1,239,954 9.4% 153,023 101,806 - - 10,000
North Hardy Toll Rd 24,319,203 1,694,388 7.0% 127,992 0.5% 1,822,380 7.5% 670,311 881,349 - 195,100 -
North Outer Loop 17,349,599 836,649 4.8% - 0.0% 836,649 4.8% (72,909) (23,083) 67,250 67,250 -
The Woodlands/Conroe 11,403,524 581,509 5.1% 29,880 0.3% 611,389 5.4% (81,298) (109,375) - - -
Total North Corridor 66,303,509 4,342,525 6.5% 167,847 0.3% 4,510,372 6.8% 669,127 850,697 67,250 262,350 10,000
Northeast Hwy 321 1,068,683 - 0.0% - 0.0% - 0.0% 0 7,700 - - -
Northeast Hwy 90 15,839,459 494,672 3.1% 68,680 0.4% 563,352 3.6% (106,260) (249,101) - - -
Northeast I-10 3,274,197 - 0.0% - 0.0% - 0.0% - - - - -
Northeast Inner Loop 11,344,182 818,314 7.2% - 0.0% 818,314 7.2% (26,961) (220,698) - - 148,793
Total Northeast Corridor 31,526,521 1,312,986 4.2% 68,680 0.2% 1,381,666 4.4% (133,221) (462,099) - - 148,793
Hwy 290/Tomball Pky 16,200,541 990,116 6.1% 16,024 0.1% 1,006,140 6.2% 34,536 300,312 204,800 -
Northwest Hwy 6 4,234,555 815,703 19.3% - 0.0% 815,703 19.3% 17,099 170,906 65,000 -
Northwest Inner Loop 60,849,381 3,106,913 5.1% 196,745 0.3% 3,303,658 5.4% 534,457 826,713 - 25,760 -
Northwest Near 16,272,442 985,839 6.1% 13,550 0.1% 999,389 6.1% 132,393 113,989 - - -
Northwest Outlier 11,199,421 399,787 3.6% - 0.0% 399,787 3.6% 235,573 378,446 180,000 180,000 -
West Outer Loop 21,225,037 1,476,795 7.0% 3,678 0.0% 1,480,473 7.0% 25,244 394,636 - 101,650 34,125
Total Northwest Corridor 129,981,377 7,775,153 6.0% 229,997 0.2% 8,005,150 6.2% 979,302 2,185,002 180,000 577,210 34,125
East I-10 Outer Loop 14,956,245 413,345 2.8% 70,000 0.5% 483,345 3.2% 40,000 (18,422) - - -
East-SE Far 43,138,260 5,289,505 12.3% 37,500 0.1% 5,327,005 12.3% 275,732 142,478 - - -
SE Outer Loop 22,090,334 564,339 2.6% - 0.0% 564,339 2.6% 85,095 (104,553) - - -
Total Southeast Corridor 80,184,839 6,267,189 7.8% 107,500 0.1% 6,374,689 7.9% 400,827 19,503 - - -
South Highway 35 28,485,232 1,420,141 5.0% 11,000 0.0% 1,431,141 5.0% (59,158) (325,149) - - 26,000
South Inner Loop 13,597,795 397,878 2.9% - 0.0% 397,878 2.9% 31,961 161,187 - - -
Total South Corridor 42,083,027 1,818,019 4.3% 11,000 0.0% 1,829,019 4.3% (27,197) (163,962) - - 26,000
Highway 59/Highway 90 22,560,202 1,342,944 6.0% 66,607 0.3% 1,409,551 6.2% 67,764 599,259 62,898 62,898 -
Southwest Far 9,536,167 612,328 6.4% - 0.0% 612,328 6.4% 39,485 119,366 - - -
Southwest Outer Loop 13,508,772 1,140,786 8.4% - 0.0% 1,140,786 8.4% 10,170 108,680 - - -
Fort Bend County/Sugar Land 17,304,062 1,201,687 6.9% 44,381 0.3% 1,246,068 7.2% 6,338 1,093,650 20,000 1,077,126 -
Total Southwest Corridor 62,909,203 4,297,745 6.8% 110,988 0.2% 4,408,733 7.0% 123,757 1,920,955 82,898 1,140,024 -
4. RESEARCH & FORECAST REPORT | Q3 2010 | HOUSTON INDUSTRIAL MARKET
COLLIERS INTERNATIONAL | P. 4
Industrial Projects Under Construction
Select 2010 Industrial Deliveries
Submarket Building Name Building Address RBA % Leased Developer
Estimated
Delivery
West Outer Loop 11987 FM 529 Warehouse 11987 FM-529 34,125 0 Texas Development Company Dec-10
South Highway 35 80 White Road Warehouse 80 White Rd 26,000 0 Holt Lundsford Commercial Oct-10
Total u/c industrial projects listed above 60,125
Submarket Building Park Building Name Building Address RBA % Leased Developer Name Delivered
Sugar Land Ind Rooms To Go Distribution Center 31111 Miller Rd 1,057,126 100 Houston Associates LLC Mar-10
Hwy 290/Tomball Pky Ind Jake's Finer Foods HQ 13400 Hollister Dr 180,000 100 n/a Feb-10
Northwest Outlier Primewest Business Park Pointsmith HQ 21202 Park Row 180,000 100 n/a Aug-10
West Outer Loop Ind 15300 Hempstead Highway Warehouse II 15300 Hempstead Hwy 150,000 82.67 The National Realty Group May-10
North Hardy Toll Road Ind LKQ Corporation 19423 Aldine Westfield Rd 98,850 100 n/a Feb-10
North Hardy Toll Road Ind AMB IAH Logistics Center III Forward Air 19220 Kenswick Dr 96,250 100 AMB Property Corporation Jan-10
North Outer Loop Ind 13627 W Hardy Warehouse 13627 W Hardy Rd 67,250 0 The National Realty Group Jun-10
Northwest Hwy 6 Ind Hempstead 1960 Business Park 20220 Hempstead Warehouse 20220 Hempstead Rd 65,000 0 Capital RE Commercial Mar-10
Northwest Inner Loop Ind 1557 W Sam Houston Industrial Flex 1557 W Sam Houston Pky 25,760 17.39 Caldwell Companies Feb-10
Hwy 290/Tomball Pky Ind Beltway 249 Business Park Beltway 249 BP, bldg. A 15825 Tx-249 Hwy 24,800 0 Capital RE Commercial Mar-10
North Fwy/Tomball Pky Ind FM 2920 Business Park FM 2920 BP, Bldgs. 1 & 2 5045 FM 2920 10,000 100 The National Realty Group May-10
Northeast I-10 Ind 9835 Wallisville Warehouse 9835 Wallisville Rd 7,800 100 n/a Mar-10
Total year-to-date industrial deliveries listed above 1,962,836
5. RESEARCH & FORECAST REPORT | Q3 2010 | HOUSTON INDUSTRIAL MARKET
480 offices in
61 countries on
6 continents
United States: 95
Canada: 17
Latin America: 17
Asia Pacific: 52
EMEA: 85
Accelerating success.
COLLIERS INTERNATIONAL | HOUSTON
1300 Post Oak Boulevard
Suite 200
Houston, Texas 77056
MAIN +1 713 222 2111
COLLIERS INTERNATIONAL | P. 5
