Q1 2014 Houston Industrial Market Research & Forecast Report

www.colliers.com/houston

Q1 2014 | INDUSTRIAL MARKET

2%

3%

4%

5%

6%

7%

8%

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

Absorption New Supply Vacancy

Houston’s industrial market remains one of the healthiest U.S. industrial markets sustained primarily due to the expansion in the oil and gas industry. Texas is expected to out-produce all but one of the OPEC nations in 2014 due to the booming Eagle Ford Shale and Permian Basin, and Houston’s industrial real estate market will benefit from that growth.

During the first quarter, 1.9M SF of Houston’s industrial inventory was absorbed. Industrial leasing activity which includes renewals, reached 5.8M SF, twice the amount leased in the previous quarter. 2.9M SF of new product delivered during the first quarter and 4.0M SF of industrial space is currently under construction. Houston’s average industrial vacancy rate rose by 20 basis points between quarters from 5.2% to 5.4% due to new inventory deliveries. The citywide average quoted industrial rental rate increased 2.4% between quarters to $6.06 from $5.92 per SF NNN, and increased 6.7% on a year-over-year basis from $5.68 per SF NNN.

The Houston metropolitan area added 91,300 jobs between January 2013 and January 2014, an annual increase of 3.4% over the prior year’s job growth. Local economists have forecast 2014 job growth to remain strong, adding between 68,000 and 72,000 jobs. Houston’s unemployment fell to 5.6% from 6.9% one year ago. Houston area home sales increased 8.35% between February 2013 and February 2014 and the average price of a single-family home rose 12.5% over the year.

Houston’s economy is expected to remain strong in 2014 due to healthy job growth and continued expansion in the energy sector.

RESEARCH & FORECAST REPORTHOUSTON INDUSTRIAL MARKET

ABSORPTION, NEW SUPPLY & VACANCY RATES

Houston’s Industrial Market Shows No Signs of Slowing in 2014

HOUSTON INDUSTRIALMARKET INDICATORS

Q1 2013 Q1 2014

CITYWIDE NET ABSORPTION (SF) 2.1M 1.9M

CITYWIDE AVERAGE VACANCY 4.9% 5.4%

CITYWIDE AVERAGE RENTAL RATE $5.68 $6.06

SF DELIVERED 1.7M 2.9M

SF UNDER CONSTRUCTION 6.1M 4.0M

Houston

UNEMPLOYMENT 1/13 1/14

HOUSTON 6.9% 5.6%

TEXAS 7.0% 5.8%

U.S. 8.5% 7.0%

JOB GROWTHANNUAL CHANGE

# OF JOBS ADDED

HOUSTON 3.4% 91.3K

TEXAS 3.0% 330.9K

U.S. 1.7% 2.3M

JOB GROWTH & UNEMPLOYMENT(Not Seasonally Adjusted)

RESEARCH & FORECAST REPORT | Q1 2014 | HOUSTON INDUSTRIAL MARKET

COLLIERS INTERNATIONAL | P. 2

Vacancy & Availability

2.9M SF of new inventory delivered

during the first quarter which helped

to increase Houston’s industrial

vacancy rate by 20 basis points

between quarters from 5.2% to 5.4%.

At the end of the first quarter, Houston

had 26.5M SF of vacant industrial

space. Among the major industrial

corridors, the Northeast Corridor has

the lowest vacancy rate at 3.4%,

followed by the Southern Corridor at

4.0%.

Houston’s industrial construction

pipeline had 4.0M SF of projects

underway at the end of the first

quarter, the majority of which is spec

development. The largest project

under construction is Liberty Property

Trust’s 650,000-SF spec warehouse

located on Fallbrook in the Northwest

Corridor. A list of additional buildings

currently under construction can be

found on Page 4 of this report.

Rental Rates

According to CoStar, our data service

provider, Houston’s citywide average

quoted industrial rental rate for all

product types increased 2.4% from

$5.92 per SF NNN in the fourth

quarter to $6.06 per SF NNN in the

first quarter. According to Colliers’

internal data, actual lease

transactions are in the $4.44 – $4.92

per SF NNN range for newer bulk

industrial spaces, while flex rates are

ranging from $6.60 to $9.00 per SF,

depending on the allowance for tenant

improvements and the location of the

property. By property type, the

average quoted NNN rental rates are

as follows: $5.71 per SF for

Distribution space; $4.39 per SF for

Bulk Logistics space; $9.54 per SF for

Flex/Service space; with Tech/R&D

space averaging $11.38 per SF,

according to CoStar.

Absorption & Demand

Houston’s industrial market posted

1.6M SF of positive net absorption in

the first quarter, with the Northwest

and North Corridor submarkets

contributing 688,000 SF and 609,500

SF respectively. The Southern

Corridor and the Southwest Corridor

posted 396,000 SF and 304,400 SF of

positive net absorption respectively.

The Northeast and Southeast

Corridor submarkets both posted

negative net absorption in the first

quarter, 134,000 SF and 70,000 SF,

respectively.

There were several major tenant

move-ins contributing to net

absorption gains in the first quarter,

including Hydroquip (98,200 SF);

Spears Manufacturing, Inc. (96,000

SF); Tara Exports, LLC (81,250 SF);

Welltec (67,700 SF); Coastal HVAC

(43,470 SF); Boots & Coots (40,000

SF); Nordyne LLC (37,479 SF);

Frontier Oil Tools (34,000 SF) and

Continental Stone (31,141 SF).

Leasing

Houston’s industrial leasing activity

reached 5.8M SF in the first quarter.

A list of select first quarter industrial

lease transactions are included in the

table below.

1 Renewal2 Expansion3 Sublease4Pre-lease proposed or under construction

Building Name/Address Submarket SF Tenant Lease Date

DCT Airtex Industrial Center North Hardy Toll Road Ind 267,170 B&G Foods, Inc. Jan-14

Carson Commerce Center East-Southeast Far Ind 185,000 Sunbelt Supply Co. Feb-14

12300-12350 Amelia Drive South Hwy 35 Ind 102,000 Niavo Gulf Industries Mar-14

Pine Forest Business Park Northwest Near Ind 84,044 Adams Warehouse & Delivery Jan-14

4800 Blaffer Street Northeast Inner Loop Ind 81,250 Tara Exports, LLC Jan-14

I-10 Central Distribution Center 1 Downtown Houston Ind 62,500 International Rags, Ltd. Jan-14

Sakowitz Warehouse Downtown Houston Ind 46,250 KT Recovery & Storage Feb-14

6230 Bingle Road Northwest Near Ind 34,066 Frontier Oil Tools Jan-14

Hempstead Distribution Center Northwest Inner Loop Ind 32,217 International Granite & Marble Corporation1 Feb-14

Bldg 5 - Liberty Northwest Business Center North Fwy/Tomball Pky Ind 25,732 Wayne Enterprises2 Feb-14

Northpark Central Bldg II North Hardy Toll Road Ind 24,447 Miat1 Feb-14

1707 Velasco Street Downtown Houston Ind 22,000 Intec Communication Jan-14

Bldg E - Beltway Industrial Park West Outer Loop Ind 22,000 South Coast Technology, Inc.1 Feb-14

North Freeway 3 Northwest Near Ind 21,600 Productos Bredy Feb-14

Bldg 200 - Hempstead Hwy Distribution Norhwest Inner Loop Ind 21,373 Hilltop Granite3 Jan-14

100 Hutcheson Street Downtown Houston Ind 21,160 Houston Maker Space Jan-14

Q1 2014 Top Industrial Leases



Houston Industrial Market Summary

Sales Activity

Q1 2014

Total Sales : $151M

No. of Properties: 89

Total SF: 3.9M

Average $/SF: $85

Average Cap Rate: 6.2%Avera Companies sold a 149,500-SF Class B industrial warehouse to Industrial Income Trust, Inc. for $11.5M or $77 per SF. The building, completed in Q1 2014, is leased to Prime Source through March 1, 2025. The building sits on 10.9 acres and the reported cap rate is 5.7%.

American International Industries, Inc. sold a 40,648-SF Class B industrial warehouse to Trader Properties, LLC for $1.3M or $33 per SF. The building is leased to Northeaster Plastics, Inc. The building is on 2.7 acres and the reported cap rate is 8.38%.

Sources: Real Capital Analytics; CoStar Comps

525 Century Plaza Drive 14221 N US 59 Hwy

Market Rentable AreaDirect

Vacant SF

Direct Vacancy

Rate

Sublet Vacant SF

Sublet Vacancy

Rate

Total Vacant SF

Total Vacancy

Rate

1Q14 Net Absorption

4Q13 Net Absorption

1Q14 Completions

4Q13 Completions

SF Under Construction

Greater Houston Total 488,399,999 25,942,909 5.3% 604,031 0.1% 26,546,940 5.4% 1,920,318 2,058,205 2,870,551 2,170,623 3,994,937

CBD-NW Inner Loop 11,522,026 632,365 5.5% 22,200 0.2% 654,565 5.7% 15,767 (36,755) - - -

Downtown 31,619,780 1,769,881 5.6% - 0.0% 1,769,881 5.6% 101,950 (69,756) - - -

North Inner Loop 5,076,141 442,894 8.7% - 0.0% 442,894 8.7% 8,475 - - - -

Southwest Inner Loop 7,140,851 45,570 0.6% - 0.0% 45,570 0.6% - 34,328 - - -

CBD Corridor Total 55,358,798 2,890,710 5.2% 22,200 0.0% 2,912,910 5.3% 126,192 (72,183) - - -

North Fwy/Tomball Pky 16,810,562 1,275,338 7.6% - 0.0% 1,275,338 7.6% (76,247) 119,404 229,798 - 1,066,428

North Hardy Toll Rd 28,437,494 2,770,418 9.7% 54,201 0.2% 2,824,619 9.9% 495,206 6,498 797,506 531,712 619,488

North Outer Loop 18,397,626 1,095,338 6.0% 1,950 0.0% 1,097,288 6.0% 169,529 109,914 165,760 25,000 351,250

The Woodlands/Conroe 14,208,533 725,929 5.1% - 0.0% 725,929 5.1% 21,020 97,891 166,900 10,000 -

North Corridor Total 77,854,215 5,867,023 7.5% 56,151 0.1% 5,923,174 7.6% 609,508 333,707 1,359,964 566,712 2,037,166

Northeast Hwy 321 1,201,673 - 0.0% - 0.0% - 0.0% 600 15,879 - - -

Northeast Hwy 90 15,924,457 373,147 2.3% 136,200 0.9% 509,347 3.2% (129,201) (7,625) 20,000 - -

Northeast I-10 3,600,845 130,280 3.6% - 0.0% 130,280 3.6% 12,801 (7,911) - - -

Northeast Inner Loop 11,591,910 451,949 3.9% - 0.0% 451,949 3.9% (18,350) 57,595 - - -

Northeast Corridor Total 32,318,885 955,376 3.0% 136,200 0.4% 1,091,576 3.4% (134,150) 57,938 20,000 - -

Hwy 290/Tomball Pky 15,895,060 970,884 6.1% 20,541 0.1% 991,425 6.2% 72,540 30,691 105,358 210,085 1,034,680

Northwest Hwy 6 4,160,953 115,928 2.8% 24,000 0.6% 139,928 3.4% (25,392) 63,034 - 44,400 -

Northwest Inner Loop 58,784,525 2,401,741 4.1% 110,817 0.2% 2,512,558 4.3% (120,334) 200,100 177,448 132,841 - Northwest Near 17,176,966 486,691 2.8% 52,719 0.3% 539,410 3.1% 597,368 170,217 255,962 - 132,470

Northwest Outlier 17,003,668 1,092,116 6.4% - 0.0% 1,092,116 6.4% 80,254 632,541 75,382 797,426 51,868

West Outer Loop 23,361,357 471,440 2.0% 29,100 0.1% 500,540 2.1% 83,499 (33,301) 332,585 19,500 122,500

Northwest Corridor Total 136,382,529 5,538,800 4.1% 237,177 0.2% 5,775,977 4.2% 687,935 1,063,282 946,735 1,204,252 1,341,518

South Highway 35 31,370,511 986,339 3.1% 23,600 0.1% 1,009,939 3.2% 344,427 14,793 143,390 154,797 342,297

South Inner Loop 13,024,824 782,281 6.0% - 0.0% 782,281 6.0% 51,596 (89,560) - - -

Southern Corridor Total 44,395,335 1,768,620 4.0% 23,600 0.1% 1,792,220 4.0% 396,023 (74,767) 143,390 154,797 342,297

East I-10 Outer Loop 13,047,099 263,136 2.0% - 0.0% 263,136 2.0% (28,000) (40,001) - - -

East-Southeast Far 47,102,094 4,753,457 10.1% 13,000 0.0% 4,766,457 10.1% (75,320) 267,622 385,462 34,400 50,156

Southeast Outer Loop 18,070,895 528,978 2.9% 31,291 0.2% 560,269 3.1% 33,741 (95,656) - - -

Southeast Corridor Total 78,220,088 5,545,571 7.1% 44,291 0.1% 5,589,862 7.1% (69,579) 131,965 385,462 34,400 50,156

Highway 59/Highway 90 21,838,715 873,433 4.0% 52,372 0.2% 925,805 4.2% 62,942 62,942 15,000 15,000 223,800

Southwest Far 10,711,120 818,571 7.6% 12,500 0.1% 831,071 7.8% 124,028 124,028 - - -

Southwest Outer Loop 12,750,635 692,991 5.4% 4,240 0.0% 697,231 5.5% 74,530 74,530 - - -

Sugar Land/Ft Bend Co 18,569,679 991,814 5.3% 15,300 0.1% 1,007,114 5.4% 42,889 42,889 - - -

Southwest Corridor Total 63,870,149 3,376,809 5.3% 84,412 0.1% 3,461,221 5.4% 304,389 304,389 15,000 15,000 223,800

Houston Industrial Market Statistical SummaryQ1 2014



Q1 2014 Industrial Under Construction – 50,000 SF or greater

Q1 2014 Industrial Deliveries – 60,000 SF or greater

Submarket Building Address RBA% Pre- Leased Developer

Estimated Delivery

Hwy 290/Tomball Pky Ind 8303 Fallbrook Dr 650,000 38.4% Liberty Property Trust May-14

North Fwy/Tomball Pky Ind 10565 Greens Crossing Blvd 600,750 82.9% Hines Jun-14

Hwy 290/Tomball Pky Ind Gessner Road & Beltway 8 384,680 0.0% DCT Industrial Trust Sep-14

North Hardy Toll Road Ind 8039 Humble Westfield Rd 250,200 0.0% K2 Logistics Jun-14

North Outer Loop Ind 121 Esplanade 244,550 0.0% IDI May-14

North Fwy/Tomball Pky Ind 300 Airtex Dr 225,360 0.0% Pontikes Development Dec-14

South Hwy 35 Ind 11951 Spectrum Blvd 150,000 100.0% Unknown Jun-14

North Hardy Toll Road Ind 400 Century Plaza Dr 149,760 0.0% Avera Companies Aug-14

South Hwy 35 Ind 7232 Airport Blvd 137,297 100.0% Powell Industries Dec-14

North Hardy Toll Road Ind 14820 North Fwy 125,454 100.0% DCT Industrial Trust Sep-14

Hwy 59/Hwy 90 (Alt) Ind 13615 S Gessner Rd 123,300 0.0% Stream Realty Partners, L.P. Jun-14

West Outer Loop Ind 5737 Brittmoore Rd 122,500 0.0% Taten Real Estate Parters May-14

North Fwy/Tomball Pky Ind 433 Plaza Verde Dr 120,159 0.0% Hines Jun-14

North Fwy/Tomball Pky Ind 545 Plaza Verde Dr 120,159 0.0% Hines May-14

North Outer Loop Ind 71 Esplanade 106,700 0.0% IDI Jul-14

North Hardy Toll Road Ind 15892 Diplomatic Plaza Dr 94,074 0.0% EastGroup Properties Jul-14

Hwy 59/Hwy 90 (Alt) Ind 13721 S Gessner 85,550 44.5% Stream Realty Partners, L.P. Jun-14

South Hwy 35 Ind 4351 E Tx-6 Hwy 55,000 100.0% Gamma Construction Company Jun-14

Submarket Building Address RBA%

Leased Developer DeliveredNorth Hardy Toll Road 19802 Imperial Valley Dr 328,020 0.0% Avera Companies Jan-14

East-Southeast Far 3750 Highway 225 185,168 0.0% The Carson Companies Feb-14

West Outer Loop 16257 Port NW-Bldg 6 171,850 0.0% Transwestern Jan-14

North Hardy Toll Road 525 Century Plaza Dr 149,760 100.0% Avera Companies Jan-14

Northwest Near Ind 7330 Langfield Rd 132,470 72.4% Avera Companies Jan-14

North Hardy Toll Road 16501 Central Green Blvd 129,143 0.0% Verde Jan-14

North Hardy Toll Road 16507 Central Green Blvd 129,143 0.0% Verde Jan-14



North Fwy/Tomball Pky 11220 Ella Blvd 163,000 0.1% Liberty Property Trust Mar-14

North Outer Loop 13627 W Hardy Road 151,339 100.0% TNRG Mar-14

Northwest Near 7390 Northcourt Rd 113,065 100.0% Unknown Mar-14

North Fwy/Tomball Pky 1050 Greens Pky 66,798 0.0% Liberty Property Trust Mar-14

Northwest Outliers 461 Stonegate Drive 63,382 100.0% Clay Development Mar-14


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