Houston Q1 2012 Industrial Outlook 06142012 For Naitonal Site

Oil and gas sector will continue to drive leasing and sales activity into 2012 and beyond. Vacancy rates remain low due to the rise in exploration, the recovery in manufacturing, and steady traffic through our region’s ports. As demand continues to rise, construction elevates throughout Houston.

Industrial Outlook Houston . Q1 2012

Jones Lang LaSalle • Industrial Outlook • Houston • Q1 2012 3

Houston industrial overview

Economy Houston’s industrial market continues to be driven by its resilient economy and international energy emphasis. As a reference, Houston began the year with more than 2.6 million payroll jobs, the highest employment level in its history. Furthermore, Houston’s unemployment rate dropped significantly, decreasing from 7.8 percent in April 2011 to 6.5 percent in April 2012. The Eagle Ford Shale formation is also bolstering Houston’s economy. As of March 2012, over 100 rigs have been added over the past 12 months with a total count of 271 rigs. To put this into perspective, there are only 1,900-2,000 active rigs in the United States. Market conditions The Houston Industrial Real Estate market has continued to outperform other markets of comparable size during first quarter of 2012 . Citywide vacancy rates declined 20 basis points to 4.4 percent as the market absorbed more than 1.1 million square feet of space. Once again, the Northwest submarket contributed a significant amount to overall citywide absorption, mainly a result of the high demand for crane-served freestanding buildings. Oil Field Services groups, among other energy-related and manufacturing users, have increasingly had a need for 5-10 acre tracts of land with sufficient crane capacity, hook height, and wider bays to move their equipment. As a result of the enhanced demand for such a unique product, vacancy rates for crane-served freestanding buildings are among the lowest in industrial product types. Citywide average asking rents, while growing in some of the stronger submarkets (North, Northwest, Southwest), have decreased marginally to $4.92/NNN, down one cent from the previous quarter. Despite this slight drop, rental rates are projected to remain stable or increase as the demand for quality space increases. Furthermore, new developments in North and Northwest Houston can be expected into 2012 as developers look to capitalize on improving market conditions.

Total industrial market (owner occupied included) Supply Construction Vacancy Availability Demand Pricing

Total stock (s.f.) Under construction (s.f.) Rate Trend Rate Trend Q1 2012 net absorption (s.f.) Average rental rate (nnn)

Total industrial market 424,975,124 3,374,427 4.5% 8.4% 1,082,026 $4.92

Warehouse/distribution 312,126,213 3,232,445 5.3% 9.4% 1,138,020 $4.92

Manufacturing 58,253,345 141,982 2.9% 7.7% -333,676 $4.44

Total flex market 36,966,761 51,000 10.8% 14.8% 114,936 $8.51

Trend spotlight… • There were a total of 1,980 oil and gas drilling rigs working in the United

States at the beginning of June.

• The Northwest submarket was the most active during the first quarter with almost one million square-feet absorbed.

• A total of 40 industrial buildings were under construction at the end of the first

quarter, totaling 4,164,053 square feet. 1,585,848 square feet of them were pre-leased.

• Houston should continue to see job growth throughout 2012 and is forecasted to add 84,600 jobs this year.

• Dow has announced it will invest more than $1.7 billion into its Freeport Plant.

• Houston and Washington D.C are the only major metro areas that have recovered all jobs lost during the recession. Houston regained all of its jobs three months before Washington D.C., an indicator of its economic fortitude.


Houston industrial overview, cont.

Houston property clock

Peaking market

Bottoming market

Land

lord l

ever

age Tenant leverage

Outlook Building sales and leasing activity are on the rise. As demand for quality space increases, new developments in Southeast, North, Northwest, and Southwest Houston are probable as developers look to capitalize on improving market conditions. Absorption numbers should continue to improve throughout the year as company operations grow and speculative construction remains limited. The Southeast submarket has the highest total vacancy rate of 5.7 percent and continues to provide opportunities for tenants interested in consolidating operations near the two container terminals. A McGraw Hill Construction forecast for 2012 predicts that commercial building will grow 8 percent nationally. Warehouse and hotels will see the largest percentage increase. Manufacturing buildings will increase 4 percent, as the low value of the dollar continues to fund export growth. Landlords are still aggressive in pursuing tenants for their developments. Leasing activity should continue to pick up among energy companies and international corporations.

Oil and gas service companies will also experience increased activity, resulting in high demand for crane served and crane ready buildings as existing vacancies are scarce. The size of these buildings is also increasing from 25,000 - 50,000 square feet with 1.5 acres of land to 50,000 – 100,000 square feet with 5 – 10 acres of land. The Eagle Ford Shale phenomenon teamed with high oil prices will sustain the drilling rig boom throughout 2012. Chevron Phillips and Dow Chemical broke ground on plant expansions in Baytown and Freeport and analysts believe there could be more built along the Gulf Coast. Increased exploration will continue to create a need for more oil field equipment thus creating more jobs. Houston should continue to see job growth during 2012 and is forecasted to add 84,600 jobs this year. Concessions could decrease for tenants as a result of a high-demand marketplace. Furthermore, land activity in North and Northwest Houston has dramatically increased.

Southeast, Southern

North, Northwest, Southwest

Northeast, CBD

Falling market

Rising market


Pricing trends

• The average asking rental rate for available industrial space was $0.41 per square foot NNN per month at the end of the first quarter 2012 in the Houston market area.

• Lease rates for first generation crane ready buildings are favorable to landlords as demand outweighs supply.

Houston industrial overview, cont.

YTD net absorption

Demand trends

• Demand is being fueled by numerous factors including 1) increasing population; 2) employment rate growth; 3) positive trade indicators; 4) increased activity in the oil and gas sector, and ; 5) a diversified economy.

• Net absorption for the Houston industrial market was positive 1,082,026 square feet in the first quarter of 2012.

Average rental rate


Methodology…

The leased industrial sector excludes owner occupied product from the market’s data set, and provides a rental equivalent perspective for industrial buildings that are leased by tenants. Buildings can move into and out of this data set based upon being purchased or sold by a particular user. Recent lease transactions

Tenant Name Location Submarket Deal type Size (s.f.)

Gulf Winds International, Inc.

Port Crossing Commerce Center – 1842 S 16th St. Southeast New Lease 247,240

Daltile Hempstead Highway Distribution Center – 11850 Hempstead Highway Northwest New Lease 116,000

Automatic Power Inc. West Little York Crossdock – 10810 W Little York Rd. Northwest New Lease 63,000

OldCastle Building Envelope Inc.

Greenspoint Business Center – 101 Esplanade Blvd. North New Lease 61,194

Transcore Equator Plaza – 2701 W Sam Houston Parkway Northwest New Lease 55,431

Cornerstone Records Management

Hardy Distribution Center I – 1521 Greens Rd. North New Lease 52,000

Total leased industrial market (excluding owner occupied facilities)

Supply total stock (s.f.)

Vacancy rate

Availability rate

Demand Q1 2012 net

absorption (s.f.)

Pricing Average rental

rate (nnn)

Total leased industrial market 234,604,140 7.3% 11.7% 1,171,797 $4.90

Warehouse/distribution 190,413,982 7.8% 12.1% 1,251,391 $4.94

Manufacturing 25,397,617 6.1% 13.4% -288,676 $4.54

Total leased flex market 29,812,407 12.4% 17.2% 104,301 $8.59

Houston leased industrial market [excluding owner occupied facilities]


Southwest 14623 Fairway Pines

RBA 152,844 s.f.

Buyer The Allied Group

Seller Crow Holdings

Price (p.s.f.) $50.00

Date sold Q2 2011

Northeast 9705 Highway 225

RBA 312,964 s.f.

Buyer Meritex Enterprises Inc.

Seller Cardinal Industrial

Price (p.s.f.) $41.70

Date sold Q2 2011

North 14345 Northwest Freeway

RBA 91,161 s.f.

Buyer Par-Pak, Inc.

Seller Cotton

Price (p.s.f.) $54.85

Date sold Q3 2011

Houston select sales

Northeast 8800 Citypark Loop

RBA 564,248 s.f.

Buyer First Industrial Real Trust, Inc.

Seller Chatham Financial Corp.

Price (p.s.f.) $54.23

Date sold Q2 2011

Northwest 8017 Pinemont Dr.

RBA 111,197 s.f.

Buyer Cabot Investment Properties LLC

Seller Colglazier Properties

Price (p.s.f.) $43.17

Date sold Q4 2011

Southeast 4554 E Greenwood Rd.

RBA 4,000,000 s.f.

Buyer Wal-Mart Stores, Inc.

Seller Texas General Land Office

Price (p.s.f.) $26.13

Date sold Q2 2011


Statistics

Large block availabilities

Construction map

Contacts

Appendix


Houston industrial market statistics

Vacancy: Physically vacant space. Total Vacancy includes both direct and sublease space. Availability: Space being marketed for lease by owner or sublessor, regardless of occupancy. Total Availability includes both direct and sublease space. Net Absorption: The net change in occupancy over a measured period of time. Average Asking Rent: Direct monthly values presented on a NNN basis, then weighted by the amount of direct available space in a building. Statistics reflect the total industrial market, including owner occupied facilities for buildings greater than 20,000 square feet.

Submarket YTD

completion (s.f.)

Inventory (s.f.)

Direct net absorption

(s.f.)

YTD direct net absorption

(s.f.)

Total net absorption

(s.f.)

YTD total net absorption

(s.f.)


(% of stock)

Direct vacancy

(s.f.)

Direct vacancy

(%)

Total vacancy

(s.f.)

Total vacancy

(%)

Average Asking rent

($ p.s.f) NNN

Under construction /

renovation (s.f.)

CBD

Warehouse & Distribution 0 40,380,215 172,069 172,069 172,069 172,069 0.4% 1,837,838 4.6% 1,837,838 4.6% $0.37 38,232

Manufacturing 0 7,081,808 42,500 42,500 42,500 42,500 0.6% 225,221 3.2% 225,221 3.2% $0.34 0

Totals 0 52,086,343 219,969 219,969 219,969 219,969 0.4% 2,093,059 4.0% 2,093,059 4.0% $0.36 38,232

North

Warehouse & Distribution 228,238 41,855,873 123,149 123,149 112,733 112,733 0.3% 2,182,128 5.2% 2,203,036 5.3% $0.53 984,973

Manufacturing 0 8,149,038 13,500 13,500 -138,776 -138,776 -1.7% 125,727 1.5% 378,003 4.6% $0.47 0

Totals 228,238 58,518,975 195,270 195,270 32,578 32,578 0.1% 2,700,333 4.6% 2,973,517 5.1% $0.52 984,973

Northeast

Warehouse & Distribution 0 23,375,793 -4,989 -4,989 12,819 12,819 0.1% 834,369 3.6% 834,369 3.6% $0.38 0

Manufacturing 0 5,486,034 -14,500 -14,500 -14,500 -14,500 -0.3% 63,000 1.1% 192,000 3.5% $0.28 0

Totals 0 28,625,958 -47,916 -47,916 -30,108 -30,108 -0.1% 879,471 3.1% 1,008,471 3.5% $0.33 0

Northwest


Manufacturing 0 13,358,894 -6,800 -6,800 -6,800 -6,800 -0.1% 351,968 2.6% 351,968 2.6% $0.44 0

Totals 257,835 111,744,407 936,717 936,717 936,717 936,717 0.8% 4,265,259 3.8% 4,422,921 4.0% $0.40 960,297


Houston industrial market statistics, cont.

Vacancy: Physically vacant space. Total Vacancy includes both direct and sublease space. Availability: Space being marketed for lease by owner or sublessor, regardless of occupancy. Total Availability includes both direct and sublease space. Net Absorption: The net change in occupancy over a measured period of time. Average Asking Rent: Direct monthly values presented on a NNN basis, then weighted by the amount of direct available space in a building. Statistics reflect the total industrial market, including owner occupied facilities

Submarket

YTD completion

(s.f.)

Inventory (s.f.)

Direct net absorption

(s.f.)

YTD direct net absorption

(s.f.)

Total net absorption

(s.f.)


(s.f.)


(% of stock)

Direct vacancy

(s.f.)

Direct vacancy

(%)

Total vacancy

(s.f.)

Total vacancy

(%)

Average Asking rent

($ p.s.f) NNN

Under construction /

renovation (s.f.)

Southeast

Warehouse & Distribution 0 54,764,215 -18,148 -18,148 -60,990 -60,990 -0.1% 4,217,105 7.7% 4,282,288 7.8% $0.37 1,109,800

Manufacturing 0 11,753,663 0 0 0 0 0.0% 27,120 0.2% 27,120 0.2% $0.54 0

Totals 0 78,666,657 -15,598 -15,598 -58,440 -58,440 -0.1% 4,451,175 5.7% 4,516,358 5.7% $0.38 1,109,800

Southern

Warehouse & Distribution 0 27,774,060 -47,962 -47,962 -47,962 -47,962 -0.2% 944,631 3.4% 986,631 3.6% $0.40 128,000

Manufacturing 0 6,836,189 -202,700 -202,700 -202,700 -202,700 -3.0% 349,912 5.1% 349,912 5.1% $0.32 0

Totals 0 38,632,778 -206,743 -206,743 -206,743 -206,743 -0.5% 1,315,053 3.4% 1,357,053 3.5% $0.39 128,000

Southwest


Manufacturing 0 5,587,719 -13,400 -13,400 -13,400 -13,400 -0.2% 187,275 3.4% 187,275 3.4% $0.51 141,982

Totals 192,431 53,988,210 248,476 248,476 166,326 166,326 0.3% 2,550,963 4.7% 2,641,621 4.9% $0.48 875,431

Market Totals

Warehouse & Distribution 678,504 312,126,213 1,269,220 1,269,220 1,138,020 1,138,020 0.4% 16,035,542 5.1% 16,411,953 5.3% $0.41 3,954,751

Manufacturing 0 58,253,345 -181,400 -181,400 -333,676 -333,676 -0.6% 1,330,223 2.3% 1,711,499 2.9% $0.37 141,982

Totals 678,504 425,007,455 1,365,502 1,365,502 1,082,026 1,082,026 0.3% 18,312,211 4.3% 19,069,898 4.5% $0.41 4,096,733


Houston industrial buildings with large block availabilities

CBD

3 Blocks

797,430 s.f.

6501 Navigation Blvd. – (M) - 286,000 s.f.

555 Gellhorn Dr. – (M) – 259,540 s.f.

8833 Citypark Loop – (W) – 254,765 s.f.

1200 Lathrop St. – (W) – 251,890 s.f.

Manufacturing Manufacturing

Warehouse Warehouse Manufacturing

Warehouse Warehouse Distribution

Contiguous blocks greater than 250,000 square feet; (M): Manufacturing; (D): Distribution; (F): Flex; (W): Warehouse

North

1 Block

286,000 s.f.

Airtex Dr. – (M) – 267,150 s.f.

Northeast

1 Block

298,000 s.f.

8501 E I-10 Fwy – (M) – 298,000 s.f.

Northwest

2 Blocks

675,273 s.f.

8110 Kempwood Dr. – (W) – 408,000 s.f.

11711 Clay Rd. – (W) – 275,000 s.f.

10650 Okanella Ln. – (D) – 267,273 s.f.

Manufacturing


Houston industrial buildings with large block availabilities, cont. Distribution Distribution Warehouse Distribution Distribution Warehouse Distribution Distribution Warehouse Warehouse Warehouse Distribution

Contiguous blocks greater than 250,000 square feet; (M): Manufacturing; (D): Distribution; (F): Flex; (W): Warehouse

Southeast

10 Blocks

4,029,692 s.f.

359 Pike Ct.– (D) – 710,200 s.f. 4906 Broadway St. – (D) – 605,879 s.f. 9501 Bay Area Blvd. – (W) – 480,480 s.f.

359 Old Underwood Rd. – (D) – 450,000 s.f.

4330 Underwood Rd. – (D) – 353,500 s.f.

8855 Citypark Loop – (W) – 346,515 s.f.

5151 Rice Farm Rd. – (D) – 312,000 s.f.

13031 Bay Area Blvd. – (D) – 296,400 s.f. 9401 Bay Area Blvd. – (W) – 283,920 s.f.

10000 Manchester St . – (W) – 270,000 s.f.

4500 Gulf Freeway – (W) – 263,378 s.f.

Southern

0 Blocks

Southwest

1 Block

369,439 s.f.

1601 Gillingham Ln. – (D) – 369,439 s.f.


Houston construction map

14 15

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10

19

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22

Construction in progress

CBD - 6503 Navigation, est. delivery Q4 2012

North – 3375 Pollock Dr., est. delivery Q4 2012

North – Airtex Dr., est. delivery Q3 2012

North – 14000 Vickery Dr., est. delivery Q3 2012

North – 16605 Central Green Blvd., est. delivery Q2 2012

North – 2442 Greens Rd., est. delivery Q2 2012

North – Kennedy Greens, est. delivery Q2 2012

North – 12309 Cutten Rd., est. delivery Q3 2012

North – 330 Northpark Dr., est. delivery Q2 2012

Northwest – 7603 Bluff Point Dr., est. delivery Q2 2012

Northwest – 7607 Bluff Point Dr., est. delivery Q2 2012

Northwest – 10650 Okanella, est. delivery Q2 2016

Northwest – 12223 FM 529, est. delivery Q3 2012

Northwest – 7645 Railhead, est. delivery Q3 2012

Northwest – 1355 Yorkfield Rd., est. delivery Q3 2012

Northwest – 6511 W Little York Rd., est. delivery Q3 2012

Northwest – Windfern and Genard St., est. delivery Q4 2012

Northwest – 12626 N Houston Rosslyn , est. delivery Q2 2012

Northwest – 12616 N Houston Rosslyn , est. delivery Q2 2012

Southwest – 1001 S Cravens Rd., est. delivery Q1 2013

Southwest – 13223 S Gessner Rd., est. delivery Q3 2012

Southwest – 13123 S Gessner Rd., est. delivery Q3 2012

South – 2725 Park South Vw, est. delivery Q3 2012

South – 9250 Park South Vw, est. delivery Q3 2012

Southeast – 5200 Gulf Freeway, est. delivery Q4 2012

Southeast – 310 W Deerwood Glen Dr., est. delivery Q3 2012

Southeast – 405 W Deerwood Glen Dr., est. delivery Q2 2012

Southeast – 300 Delta Parkway, est. delivery Q2 2012

Southeast – Fairlane St. And Highway 146., est. delivery Q2 2012

Southeast – 1445 Sens Rd., est. delivery Q2 2012

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Houston contacts

Research Lauren Kelley Research Analyst +1 713 888 4046 [email protected] Brokerage Bob Berry, SIOR Executive Vice President +1 713 888 4028 [email protected] John Talhelm, SIOR Senior Vice President +1 713 888 4058 [email protected]

mailto:[email protected]

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Houston Q1 2012 Industrial Outlook 06142012 For Naitonal Site