Houston Q3 2023 Industrial Report!

[Bill Rapp]

Construction deliveries in the first three quarters of 2023 reached almost 27 million square feet, surpassing the 24 million square feet delivered last year. This year's construction deliveries contrast sharply with the limited square footage planned for delivery in 2024. Houston has delivered more square footage in each of the last three quarters than what is expected to be delivered in the entirety of 2024.

Despite the significant number of new deliveries, the vacancy rate remains below 7.5%. Leasing velocity appears to be holding firm, suggesting resilience in the face of potential recession concerns. This quarter's activity was driven by several large lease transactions.

Year-to-date absorption is around 15 million square feet, positioning us to finish the year at around 20 million square feet. While this year's absorption numbers may seem lower compared to the last two years, they are still significantly higher than pre-COVID-19 levels. The unsustainable absorption numbers seen across the country in the past two years are returning to normal.

Rental rates have stabilized for larger bulk-distribution buildings, but continue to rise for smaller infill spaces. Some areas that have received recent building deliveries are being closely monitored, but none have reached a distressing level.

Overall, our outlook for the remainder of the year remains cautiously optimistic.