Houston, TX Q4 2022 Industrial Report
The Houston industrial real estate market exhibited excellent growth during the last quarter of 2022, with positive absorption and high industrial sales volumes. Houston’s active construction scene is responding to increased demand from shippers finding more efficient supply chains.
Rental rates also increased—albeit at a slower rate than in previous quarters. Houston’s high employment growth is expected to drive future rental increases across 2023.
Area Overview and Demographics
Houston is the largest city in both Texas and the Southern United States, with a population of 2.3 million as of 2023.
The average age is 33, and the median household income is $53,600. Houston has traditionally had strong economic growth thanks to its lax land-use policies and activity in fossil fuels and manufacturing.
The city of Houston has a humid subtropical climate, with long, wet summers and short, mild winters. The city receives substantial rainfall, and many areas are at annual flood risk due to impermeable clay soil.
Houston has a large and diverse economy with significant presences in energy, manufacturing, biomedical research, and aeronautics. The city is home to several Fortune 500 companies, such as Phillips 66, Sysco, ConocoPhillips, and Halliburton.
Summary of Houston Industrial Performance in Q4 2022
The Houston industrial market posted excellent growth this quarter with over 5.4 million square feet of positive absorption, averaging 28.9 million square feet of positive absorption across all of 2022. The majority of positive absorption came from the Northwest, Southwest, and Southeast Corridors.
Vacancy rates were also low at 5.6%—a 90 basis point decrease from the beginning of the year at 6.5%. The Northwest Corridor saw the greatest drop in vacancy rates from 6.6% in Q3 2022 to 5.9% in Q4 2022, while the Northeast Corridor had the largest increase in vacancies from 5.1% in Q3 2022 to 6.1% in Q4 2022.
Overall, the industrial market in Houston outperformed all other asset classes. The strong performance is set to continue into the new year with relative stability.
What Are Industrial Rents Like in Houston?
Industrial rents rose 1.5% from $8.87 per square foot in Q3 2022 to $8.99 per square foot in Q4 2022. Rents have continued to increase over the year from $8.01 in Q1 2022, but the previous quarter’s increase was much smaller than earlier this year.
The submarkets with the highest industrial asking rates were in the Southwest Corridor and Northwest Corridor at $10.62 and $9.21 per square foot. Leasing activity in most industrial submarkets remains very strong, so investors can expect regular rental increases over the foreseeable future.
Purchase & Leasing Activity
The Houston industrial real estate market experienced significant leasing activity across Q4 2022 at over 11.2 million square feet. Leasing activity finished the year higher than last year’s total of 48 million square feet. High interest rates did cause slight slowdowns in purchasing activities, but pricing did not decline over the quarter.
