Q2 2018 | Houston Industrial | Research & Forecast Report

Q2 2018 | Houston Industrial | Research & Forecast Report

• 1.
  Share or viewonline at colliers.com/houston Houston industrial tenants move to new space, increasing vacancy in older inventory Research & Forecast Report HOUSTON | INDUSTRIAL Q2 2018 Lisa Bridges Director of Market Research | Houston E-commerce continues to expand, helping to grow Houston’s industrial inventory. More than 12.3 million SF of industrial space is currently under construction, much of that in the form of distribution and logistics facilities. Liberty Property Trust is developing a 727,600-SF distribution warehouse located at 14803 Woodham Drive in the North Hardy Toll Rd submarket for Grocers Supply and a 550,000-SF distribution center is under construction at 636 Highway 90 in the Hwy 59/Hwy 90 submarket for Best Buy, just to name a few. In general, the negative absorption as a percentage of the 560 million SF of existing industrial inventory is a small number, but we do keep an eye on vacancies as they arise. The vacancies created during the quarter of 2018 resulted from tenants who left older functionally obsolete buildings in a “flight to quality” for newer, state of the art buildings in different submarkets, or a couple of smaller 60,000 - 80,000 SF tenants that closed operations due to corporate M&A activity, or due to other restructuring. The strength of the market overall, including the balance of new deliveries in submarkets around the city indicate that the overall industrial market is healthy. According to the U.S. Bureau of Labor Statistics, the Houston MSA created 79,200 jobs (not seasonally adjusted) between May 2017 and May 2018, an annual growth rate of 2.6%, which is above the national average job growth rate of 1.6%. The largest gains by sector include manufacturing, construction and employment services. Summary Statistics Houston Industrial Market Q2 2017 Q1 2018 Q2 2018 Vacancy Rate 5.6% 5.3% 5.5% Net Absorption (SF) (13,100) 2,812,181 (231,558) New Construction (SF) 1,502,400 3,091,633 1,625,625 Under Construction (SF) 4,227,300 9,266,194 12,370,032 Asking Rents Per Square Foot Per Year (NNN) Average $6.89 $6.76 $7.03 Warehouse/Distribution $6.63 $6.53 $6.66 Flex/Service $10.52 $9.82 $9.98 Tech/R&D $11.49 $10.22 $10.82 Market Indicators Relative to prior period Annual Change Quarterly Change Quarterly Forecast* VACANCY NET ABSORPTION NEW CONSTRUCTION UNDER CONSTRUCTION *Projected
• 2.
  Change in Sales(Year over Year) -100.0% -50.0% 0.0% 50.0% 100.0% 150.0% 200.0% 250.0% 300.0% Q2 '14 Q2 '15 Q2 '16 Q2 '17 Q2 '18 Average Price Per SF 40 45 50 55 60 65 70 75 80 85 90 Q2 '14 Q2 '15 Q2 '16 Q2 '17 Q2 '18 Houston U.S. Average CAP Rate 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% Q2 '14 Q2 '15 Q2 '16 Q2 '17 Q2 '18 Houston U.S. 2 Houston Research & Forecast Report | Q2 2018 | Industrial | Colliers International Sales Activity Source: Real Capital Analytics Q2 2018 NO. OF PROPERTIES: 38 TOTAL SF: 4.5M AVERAGE $/SF: $81 AVERAGE CAP RATE: 6.0% Job Growth & Unemployment (not seasonally adjusted) UNEMPLOYMENT 5/17 5/18 HOUSTON 4.8% 4.2% TEXAS 4.1% 3.7% U.S. 4.1% 3.6% Vacancy & Availability Houston’s average industrial vacancy rate increased 20 basis points from 5.3% to 5.5% over the quarter. At the end of theecond quarter, Houston had 28.8 million SF of vacant industrial space for direct lease and an additional 1.9 million SF of vacant sublease space. Among the major industrial corridors, the Northeast Corridor had the lowest vacancy rate at 2.5%, followed by the South Corridor at 3.9%. The submarket with the largest percentage of vacant space is the Northwest Corridor which had a 6.0% vacancy rate. Absorption & Demand Houston’s industrial market posted 231,558 of negative net absorption in the second quarter, a significant decrease from the 2.8 million SF or positive absorption recorded in the previous quarter. The negative absorption as a percentage of the total existing industrial inventory is a small number and was mostly the effect of tenants relocating to newly delivered space, leaving older space vacant. Some of the tenants that relocated or expanded into newly constructed space during Q1 2018 include B&H Bag Company (186,306 SF) in the Northwest Outliers submarket, Evoqua Water Technologies (107,000 SF) in the North Hardy Toll Rd submarket and ThyssenKrupp (71,916 SF) in the North Fwy/ Tomball Pky submarket. The Southeast and North Corridors posted the largest amount of positive net absorption during the second quarter, posting 0.4 million SF and 0.3 million SF, respectively. The submarket with the highest amount of negative absorption was the Northwest Corridor, posting 962,116 SF of negative net absorption. Rental Rates According to CoStar, our data service provider, Houston’s citywide average quoted industrial rental rate for all product types increased from $6.76 per SF NNN to $7.03 per SF NNN over the quarter. According to Colliers’ internal data, actual lease transactions are in the $4.56 – $5.04 per SF NNN range for newer bulk industrial spaces, while flex rates range from $7.20 to $10.80 per SF depending on the existing improvements or the allowance provided for tenant improvements and the location of the property. According to CoStar, the average quoted NNN rental rates by property type are as follows: $6.66 per SF for Warehouse Distribution space; $9.98 per SF for Flex/ Service space; with Tech/R&D space averaging $10.82 per SF. JOB GROWTH Annual Change # of Jobs Added HOUSTON 2.6% 79.2K TEXAS 2.8% 344.7K U.S. 1.6% 2.4M
• 3.
  3 Houston Research& Forecast Report | Q2 2018 | Industrial | Colliers International33 Q2 2018 Industrial Lease Transactions over 50,000 SF BUILDING NAME/ADDRESS SUBMARKET SF TENANT LEASE DATE 14803 Woodham Dr North Hardy Toll Rd 727,600 Grocers Supply2 Jun-18 12101 McLain Rd Hwy 59/Hwy 90 143,986 Hose Master1 Apr-18 800 Koomey Rd Northwest Outliers 186,306 B&H Bag Company1 Apr-18 600 Fallbrook Dr North Fwy/Tomball Pky 107,790 Kitchen Cabinet Distributors1 Apr-18 15414 International Plaza Dr North Hardy Toll Rd 107,000 Evoqua Water Technologies1 May-18 8000 Market St Southeast Outer Loop 93,600 Metrix1 Jun-18 Leasing Activity Houston’s industrial leasing activity decreased 9% over the quarter from 5.8M SF in Q1 2018 to 5.4M SF in Q2 2018. Most of the transactions consisted of leases for 75,000 SF or less; however, there were several larger deals that occurred. The table below highlights some of the larger transactions that closed in Q2 2018. 1 Direct/New 2 Pre-lease in BTS Under Construction Currently 12.4M SF of industrial space is under construction in Houston and 37.4% is pre-leased. The largest project under construction is a 727,600-SF BTS distribution warehouse for Grocers Supply Company which is being developed by Liberty Property Trust. Below is a partial list of buildings currently under construction. Q2 2018 Industrial Under Construction - 300,000 SF or greater BUSINESS PARK/ADDRESS SUBMARKET RBA % LEASED DEVELOPER/CONTRACTOR DELIVERY DATE BUILDING DESCRIPTION 14803 Woodham Dr North Hardy Toll Rd 727,600 100% Liberty Property Trust Apr-19 BTS for Grocers Supply Company Parc Air 59 - 18250 Hwy 59 N Northeast Hwy 90 677,040 0% Archway Properties Dec-18 Spec Distribution 525 Cane Island Pky Northwest Outliers 673,785 0% Oakmont Industrial Group Jul-18 Spec Distribution 1302 Wharton Weems Blvd - Bldg B2 East-Southeast Far 600,360 0% Liberty Property Trust Jul-18 Spec Distribution 636 Hwy 90 Hwy 59/Hwy90 550,000 100% Seefried Properties, Inc. Oct-18 BTS for Best Buy Cedar Port Industrial Park East-Southeast Far 500,000 100% Avera Companies Sep-18 BTS Vinmar International Bayport South Business Park III East-Southeast Far 500,000 0% Johnson Development Assoc. Mar-19 Spec Distribution Northwest Logistics Center West Outer Loop 411,442 0% Stream Realty Partners, L.P. Jul-18 Spec Distribution Bayport Logistics Park Bldg 2 East-Southeast Far 369,755 100% Avera Companies Oct-18 BTS for Kuraray Fallbrook Pines Business Park Hwy 290/Tomball Pky 368,467 0% TrammellCrowCompany Aug-18 Spec Warehouse Gateway Northwest Business Park Northwest Hwy 6 368,432 43.7% Duke Realty Corporation Jul-18 Spec Warehouse Victory Commerce Center East-Southeast Far 349,050 0% Crow Holdings Industrial Mar-19 Spec Distribution Point North Three North Hardy Toll Road 337,700 0% Duke Realty Corporation Aug-18 Spec Warehouse 22806 Northwest Lake Dr Northwest Outliers 320,000 100% Kingham Dalton Ltd. Dec-18 BTS for AIV Inc.
• 4.
  4 Houston Research& Forecast Report | Q2 2018 | Industrial | Colliers International Q2 2018 Houston Industrial Market Statistical Summary MARKET RENTABLE AREA DIRECT VACANT SF DIRECT VACANCY RATE SUBLET VACANT SF SUBLET VACANCY RATE TOTAL VACANT SF TOTAL VACANCY RATE 2Q18 NET ABSORP- TION 1Q18 NET ABSORP- TION 2Q18 COMPLE- TIONS SF UNDER CONSTRUC- TION HOUSTON TOTAL 562,070,336 28,795,315 5.1% 1,936,971 0.3% 30,732,286 5.5% (231,558) 2,812,181 1,625,625 12,370,032 CBD-NW Inner Loop 11,405,369 503,921 4.4% 25,755 0.2% 529,676 4.6% 99,834 (88,855) 0 14,250 Downtown 31,418,190 1,048,076 3.3% 26,437 0.1% 1,074,513 3.4% 237,057 16,776 0 0 North Inner Loop 4,858,519 296,272 6.1% 0 0.0% 296,272 6.1% 33,722 (72,779) 0 0 Southwest Inner Loop 7,007,302 267,259 3.8% 0 0.0% 267,259 3.8% (108,629) (26,513) 0 0 INNER LOOP CORRIDOR TOTAL 54,689,380 2,115,528 3.9% 52,192 0.1% 2,167,720 4.0% 261,984 (171,371) 0 14,250 North Fwy/Tomball Pky 25,324,246 2,633,030 10.4% 158,702 0.6% 2,791,732 11.0% 357,585 (33,994) 894,280 631,370 North Hardy Toll Rd 34,510,616 2,549,867 7.4% 203,465 0.6% 2,753,332 8.0% (145,055) 324,596 176,900 1,295,425 North Outer Loop 21,991,436 627,808 2.9% 76,910 0.3% 704,718 3.2% 235,242 195,550 0 0 The Woodlands/ Conroe 17,615,356 1,240,149 7.0% 103,949 0.6% 1,344,098 7.6% (122,601) 139,977 98,366 25,685 NORTH CORRIDOR TOTAL 99,441,654 7,050,854 7.1% 543,026 0.5% 7,593,880 7.6% 325,171 626,129 1,169,546 1,952,480 Northeast Hwy 321 1,324,329 33,000 2.5% 0 0.0% 33,000 2.5% 12,000 7,340 0 0 Northeast Hwy 90 18,551,333 355,485 1.9% 0 0.0% 355,485 1.9% (89,282) 316,805 21,000 997,040 Northeast I-10 4,091,145 76,922 1.9% 6195 0.2% 83,117 2.0% 26,360 48,950 0 0 Northeast Inner Loop 11,681,548 394,988 3.4% 22,500 0.2% 417,488 3.6% (61,045) (109,402) 0 0 NORTHEAST CORRIDOR TOTAL 35,648,355 860,395 2.4% 28,695 0.1% 889,090 2.5% (111,967) 263,693 21,000 997,040 Hwy 290/Tomball Pky 22,618,017 1,290,461 5.7% 154,123 0.7% 1,444,584 6.4% (276,865) 41,707 0 889,319 Northwest Hwy 6 10,350,641 424,125 4.1% 0 0.0% 424,125 4.1% 28,833 101,340 0 435,672 Northwest Inner Loop 60,353,714 3,642,194 6.0% 193,022 0.3% 3,835,216 6.4% (859,026) 110,031 0 42,166 Northwest Near 18,419,329 982,376 5.3% 78,943 0.4% 1,061,319 5.8% 62,858 (139,867) 0 0 Northwest Outlier 22,791,795 1,421,668 6.2% 37,216 0.2% 1,458,884 6.4% 84,429 1,178,956 231,839 2,422,655 West Outer Loop 25,582,078 1,354,781 5.3% 84,200 0.3% 1,438,981 5.6% (2,345) 67,734 0 433,042 NORTHWEST CORRIDOR TOTAL 160,115,574 9,115,605 5.7% 547,504 0.3% 9,663,109 6.0% (962,116) 1,359,901 231,839 4,222,854 South Highway 35 35,113,991 1,228,297 3.5% 121,836 0.3% 1,350,133 3.8% (17,275) (257,196) 38,500 75,765 South Inner Loop 12,564,984 504,380 4.0% 20,295 0.2% 524,675 4.2% (111,506) 233,569 0 0 SOUTH CORRIDOR TOTAL 47,678,975 1,732,677 3.6% 142,131 0.3% 1,874,808 3.9% (128,781) (23,627) 38,500 75,765 East I-10 Outer Loop 13,072,490 350,468 2.7% 0 0.0% 350,468 2.7% (77,381) (93,921) 0 10,000 East-Southeast Far 63,475,496 2,835,598 4.5% 443,000 0.7% 3,278,598 5.2% 638,821 859,768 89,440 4,496,805 Southeast Outer Loop 17,334,371 722,351 4.2% 15,000 0.1% 737,351 4.3% (149,782) (97,982) 0 0 SOUTHEAST CORRIDOR TOTAL 93,882,357 3,908,417 4.2% 458,000 0.5% 4,366,417 4.7% 411,658 667,865 89,440 4,506,805 Highway 59/Highway 90 23,211,646 1,518,349 6.5% 81,411 0.4% 1,599,760 6.9% 58,668 (146,030) 0 550,000 Southwest Far 12,686,309 902,541 7.1% 9,117 0.1% 911,658 7.2% 39,045 231,559 75,300 10,000 Southwest Outer Loop 13,256,970 835,321 6.3% 8,691 0.1% 844,012 6.4% (46,617) 8,905 0 13,198 Sugar Land/Ft Bend Co 21,459,116 755,628 3.5% 66,204 0.3% 821,832 3.8% (78,603) (4,843) 0 27,640 SOUTHWEST CORRIDOR TOTAL 70,614,041 4,011,839 5.7% 165,423 0.2% 4,177,262 5.9% (27,507) 89,591 75,300 600,838 Market Summary
• 5.
  5 North AmericanResearch & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International Copyright © 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. Colliers International | Market 000 Address, Suite # 000 Address, Suite # +1 000 000 0000 colliers.com/<<market>> 5 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International Copyright © 2018 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. Colliers International | Houston 1233 West Loop South, Suite 900 Houston, Texas 77027 +1 713 222 2111 colliers.com/houston FOR MORE INFORMATION Lisa Bridges Director of Market Research | Houston +1 713 830 2125 [email protected] Q2 Houston Industrial 2018 Highlights
• 6.
  6 Houston Research& Forecast Report | Q2 2018 | Industrial | Colliers International6 Our philosophy revolves around the fact that the best possible results come from linking our global enterprise with local advisors who understand your business, your market, and how to integrate real estate into a successful business strategy. C O L L I E R S I N T E R N A T I O N A L G L O B A L L O C A T I O N S COMMERCIAL REAL ESTATE SECTORS REPRESENTED OFFICE INDUSTRIAL LAND RETAIL HEALTHCARE MULTIFAMILY HOTEL $116BTRANSACTION VALUE 2BSF UNDER MANAGEMENT $2.7BIN REVENUE 413OFFICES 15,400PROFESSIONALS 340ACCREDITED MEMBERS 69COUNTRIES SIOR ADVANTAGE Colliers International Group Inc. (NASDAQ: CIGI) (TSX: CIGI) is a top tier global real estate services and investment management company operating in 69 countries with a workforce of more than 12,000 professionals. Colliers is the fastest-growing publicly listed global real estate services and investment management company, with 2017 corporate revenues of $2.3 billion ($2.7 billion including affiliates). With an enterprising culture and significant employee ownership and control, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide, and through its investment management services platform, has more than $20 billion of assets under management from the world’s most respected institutional real estate investors. Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice to accelerate the success of its clients. Colliers has been ranked among the top 100 global outsourcing firms by the International Association of Outsourcing Professionals for 13 consecutive years, more than any other real estate services firm. Colliers is ranked the number one property manager in the world by Commercial Property Executive for two years in a row. Colliers is led by an experienced leadership team with a proven record of delivering more than 20% annualized returns for shareholders, over more than 20 years.