Property Types Industrial
April 30, 2009
By: Tonie Auer, Contributing Correspondent
The first three months of 2009 saw the first quarterly negative growth in Houston’s industrial market since 2003. The market posted a half-million square feet of negative net absorption in the first quarter, according to a report by Grubb & Ellis Co.
The pullback comes on the heels of more than 7.5 million square feet of positive absorption recorded in 2008. The quarterly space loss was attributed to warehouse/distribution properties registering 397,900 square feet of negative absorption, while standard industrial type properties recorded 212,800 square feet of red ink, the Grubb & Ellis report stated.
With leasing velocity coming to a halt during the first quarter and new construction deliveries continuing to pour into the pipeline, Houston has seen overall vacancy increase by 160 basis points since the same time last year, when vacancy stood at a low 5.6 percent.
“The challenge facing landlords is that many of these new projects coming online are sitting with large chunks of vacant space, which has provided ample opportunities for tenants looking for space,” the report stated. “However, the landlords’ hands are tied as they can not afford to lower face rents too much as they must account for the high construction costs and land prices paid for these facilities. Therefore, owners find themselves in a precarious position, having to get creative in their deal-making efforts in order to remain competitive with existing older product leasing at much lower rents.”
As a result tenants now hold the upper hand in lease negotiations and landlords are more willing to increase concession packages in order to stimulate activity, according to the report. On the bright side, the construction pipeline is thinning out which will allow the market to recover quicker and avoid an over-built scenario as the ongoing credit crisis has made it difficult for developers to obtain financing for new developments. This will allow the opportunity for Houston’s industrial market to regain its footing with the equilibrium between supply and demand reaching a healthy balance by late 2009 or 2010, the report stated.
Among one of the new projects recently opened is the new 253,800-square-foot Guhn Road Distribution Center. The project (pictured) was recently completed as part of an industrial development alliance between McShane Development Co. and MetLife Real Estate Investments.
On the leasing front, deals are still occurring, with Sandvik, Inc. closing on an 80,000-square-foot lease at the Cole Creek Business Park in northwest Houston in April. Sandvik will consolidate two of its Houston locations to fully occupy the new facility. And in mid-January, Port Crossing Corporate Center, a joint venture of National Property Holdings and ML Realty Partners, leased 103,200 square feet at 1701 S. 16th St. in LaPorte to Overland Distribution. On Jan. 27, CPN reported that Tennessee-based third party logistics provider OHL signed a deal to lease more than 147,000 square feet of recently completed distribution space in Houston from ProLogis.
By: Tonie Auer, Contributing Correspondent
The first three months of 2009 saw the first quarterly negative growth in Houston’s industrial market since 2003. The market posted a half-million square feet of negative net absorption in the first quarter, according to a report by Grubb & Ellis Co. The pullback comes on the heels of more than 7.5 million square feet of positive absorption recorded in 2008. The quarterly space loss was attributed to warehouse/distribution properties registering 397,900 square feet of negative absorption, while standard industrial type properties recorded 212,800 square feet of red ink, the Grubb & Ellis report stated.
With leasing velocity coming to a halt during the first quarter and new construction deliveries continuing to pour into the pipeline, Houston has seen overall vacancy increase by 160 basis points since the same time last year, when vacancy stood at a low 5.6 percent.
“The challenge facing landlords is that many of these new projects coming online are sitting with large chunks of vacant space, which has provided ample opportunities for tenants looking for space,” the report stated. “However, the landlords’ hands are tied as they can not afford to lower face rents too much as they must account for the high construction costs and land prices paid for these facilities. Therefore, owners find themselves in a precarious position, having to get creative in their deal-making efforts in order to remain competitive with existing older product leasing at much lower rents.”
As a result tenants now hold the upper hand in lease negotiations and landlords are more willing to increase concession packages in order to stimulate activity, according to the report. On the bright side, the construction pipeline is thinning out which will allow the market to recover quicker and avoid an over-built scenario as the ongoing credit crisis has made it difficult for developers to obtain financing for new developments. This will allow the opportunity for Houston’s industrial market to regain its footing with the equilibrium between supply and demand reaching a healthy balance by late 2009 or 2010, the report stated.
Among one of the new projects recently opened is the new 253,800-square-foot Guhn Road Distribution Center. The project (pictured) was recently completed as part of an industrial development alliance between McShane Development Co. and MetLife Real Estate Investments.
On the leasing front, deals are still occurring, with Sandvik, Inc. closing on an 80,000-square-foot lease at the Cole Creek Business Park in northwest Houston in April. Sandvik will consolidate two of its Houston locations to fully occupy the new facility. And in mid-January, Port Crossing Corporate Center, a joint venture of National Property Holdings and ML Realty Partners, leased 103,200 square feet at 1701 S. 16th St. in LaPorte to Overland Distribution. On Jan. 27, CPN reported that Tennessee-based third party logistics provider OHL signed a deal to lease more than 147,000 square feet of recently completed distribution space in Houston from ProLogis.
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