The industrial commercial real estate market in Houston, TX, saw an overall rent rise of 13.5%, primarily due to the move of oil exploration companies into this region because of its proximity to the Gulf Coast and its ability to provide both offshore and onshore platforms for drilling operations.
Houston’s industrial property market continues to expand at a significant rate.
Rent prices will continue rising throughout 2022 as leasing and construction activities increase alongside rental rates.
Houston’s commercial real estate markets remain among the strongest in the nation.
A general overview of the demographics of the area
Houston, TX, is one of the largest cities in Texas and the fourth largest in the US, with an estimated metro area population of 6.6 million people in 2022.
The county covers more than 600 square kilometers and is the country’s fifth-biggest county by area.
Houston has a large number of racial and ethnic groups, with Whites (47%), Blacks (24%), Hispanics/Latinos (19%), Asians (6%), and Natives Americans (3%) making up roughly half its total population.
The average person in Houston is 32 years old. Unemployed people in Houston are at 4.3%.
What was Houston’s price per square foot for warehouse space in Q2 2022?
Warehouse rentals in Houston averaged $8.25 per square foot in Q2 2022, compared to $8.00 per sq. ft. in Q1 2022.
Between Q1 and Q2 2022, the average cost of purchasing warehouse space in Houston has gone up by about 10%.
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Investors and development teams believe that 2022 is unpredictable for Houston, but the demand for investment and development remains high despite rising interest rates and runaway prices.
The growing difference between buyers and sellers is expected to continue increasing for the foreseeable future.
Vacancy rates and occupancy rates
Industrial vacancies in Houston have been steadily decreasing since the start of the COVID19 crisis.
According to the latest figures, the Q2 2022 industrial vacancies in Houston currently stand at about 5.7%, down from 8.5% compared to last quarter and an average of about 7% for the first three quarters of 2019.
Leasing activity in the Houston market reached its highest level ever in Q2 2022, hitting 10 million square feet. In addition, approximately 65 million square feet of new industrial space have already been proposed or are currently being constructed.
Houston’s Industrial Real Estate Net Absorption in Q2 2022
Houston’s strong performance in Q2 2022 was yet another sign of robust market activity: Nearly 6.5 million square footage of positive net absorption as businesses continue to expand their footprints in Houston.
The Pacing of Industrial Rents in Houston, TX
Over the past few years, annual increases in Houston’s s industrial rental prices have typically been around 2%. However, recently, they’ve increased significantly.
On average, the annual rates of increase for industrial rents in Houston have increased by about 3.5% per year.
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This is mainly because property owners are raising rents to combat rising costs and keep their buildings operating. Still, other factors like Federal Reserve Chairman Jerome Powell’s recent decision to raise interest rates could continue to support this new average annual rent growth for many quarters.
Takeaways for Houston, TX Industrial Real Estate Investors
Investors and developers are taking a step back to reassess the industrial landscape and the potential for Houston, Texas, amid rising rates and runaway inflation.
The significantly aggressive policy by the Fed to raise interest rates will undoubtedly impact the pace at which new projects are started and completed.
The market might equalize in late 2023 when more industrial projects are completed and delivered, raising vacancy levels and decreasing rents.
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