"October Marks Peak Industrial Leasing in Houston for the Year"
11/14/2023
In the last quarter, Houston experienced a drop in industrial demand at a faster rate than its supply pipeline, but October emerged as the strongest month for industrial leasing in the year, surpassing the previous peak in June, according to a recent report by JLL. The report reveals that October witnessed 3.4 million square feet (SF) of industrial leasing activity, outpacing the city's earlier high of 3.3 million SF in June.
The robust leasing activity in October was fueled by four deals each exceeding 300,000 SF, contributing to a year-to-date transaction volume of 27.5 million SF, surpassing the total for the entire year in 2020. Notably, only two leases exceeding 300,000 SF were reported in the third quarter, including Distribution Alternatives' 855,000 SF deal and Technip FMC's 462,000 SF contract.
The October leases encompassed an 840,000 SF and a 340,000 SF lease in the west submarket, a 410,000 SF lease in the north submarket, and a 320,000 SF lease in the northwest submarket. JLL, however, did not provide specific details about these transactions.
The report characterizes October's activity as a "grand entrance" for the fourth quarter, highlighting that 2022 has brought historically high leasing volume to Houston. Despite leasing volume in 2023 trailing behind the previous year, every month this year has surpassed the monthly leasing average for the period between 2015 and 2019.
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October and June notably exceeded the average monthly leasing volume from 2020 to the present, with the 2015 to 2019 monthly average at approximately 1.6 million SF and the average since 2020 at 3.2 million SF.
JLL anticipates that October has set a trajectory to drive demand through the end of the year, boosted by the pipeline of active pursuits expected to transact before the holiday season.
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However, despite the high leasing volume compared to pre-pandemic years, analysts predict an increase in Houston's industrial vacancy. In the third quarter, Houston's industrial leasing was down by 25% from the previous year, while supply deliveries only decreased by 10%, according to the Savills report. Nationwide, the industrial market has experienced a slight slowdown, with Houston reflecting this trend, showing positive absorption but witnessing vacancies on the rise due to the influx of new supply. As of the third quarter, Houston had an additional 23.9 million SF of industrial property under construction, according to the Savills report.