Q4 2012 Houston Industrial Market Research Report

www.colliers.com/houston

Q4 2012 | INDUSTRIAL MARKET

Houston’s industrial market remains one of the ten healthiest U.S. industrialmarkets because of its low vacancy, stable rental rates and positive absorption.Houston posted 1.4M SF of positive net absorption in the fourth quarter, pushingthe year-end total to 6.2M SF. Leasing activity reached 3.3M SF in the fourthquarter, pushing the year-to-date total to 13.2M SF. Houston’s average industrialvacancy rate decreased from 5.3% to 5.2% in the between quarters. Due to thelarge amount of new inventory deliveries, Houston’s industrial vacancy onlydecreased 1% between quarters despite the significant positive absorption. Theoverall average quoted industrial rental rate increased from $5.51 to $5.59 per SFNNN between quarters, and increased by 2.6% on a year-over-year basis from$5.45 per SF NNN at the end of 2011.

Houston’s lack of available industrial inventory has spurred demand for newproduct. Developers have responded and currently have 2.6M SF underconstruction. Much of the increased activity has been driven by build-to-suitprojects for companies expanding in or relocating to the Houston market,however, there are now more spec developments (1.9M SF) than build-to-suitprojects. As Houston’s available industrial inventory shrinks, we believe theincreasing demand for new product will continue to spur both build-to-suit andspec development.

The Houston metropolitan area added 85,000 jobs between November 2011 andNovember 2012, an annual increase of 3.2% over the prior years job growth.Further, Houston’s unemployment rate fell to 5.8% from 7.3% one year ago whichhas bolstered Houston area home sales. With continued expansion in the energyindustry and a strong housing market, Houston’s economy is expected to remainhealthy for both the near and long-term.

RESEARCH & FORECAST REPORTHOUSTON INDUSTRIAL MARKET

ABSORPTION, NEW SUPPLY & VACANCY RATES

Houston YE 2012 Industrial Absorption – 6.2M SF

2%

3%

4%

5%

6%

7%

8%

-1,000,000-500,000

0500,000

1,000,0001,500,0002,000,0002,500,000

Absorption New Supply Vacancy

CITYWIDE MARKET INDICATORS

Houston YE 2011 YE 2012

Net Absorption (SF) 5.2M 6.2M

Average Rental Rate per SF $5.45 $5.59

Vacancy 5.9% 5.2%

SF Delivered 1.9M 4.0M

SF UnderConstruction 2.9M 2.6M

UNEMPLOYMENT 11/11 11/12

Houston 7.3% 5.8%

Texas 7.2% 5.8%

U.S. 8.2% 7.4%

JOB GROWTHANNUAL CHANGE

# OF JOBS ADDED

Houston 3.2% 85K

Texas 2.6% 274K

U.S. 1.4% 1.9M

JOB GROWTH & UNEMPLOYMENT(Not Seasonally Adjusted)

RESEARCH & FORECAST REPORT | Q4 2012 | HOUSTON INDUSTRIAL MARKET

COLLIERS INTERNATIONAL | P. 2

Vacancy & Availability

Houston’s industrial vacancy decreasedfrom 5.3% to 5.2% between quartersbecause close to 1M SF of new inventorywas added to the market.

At the close of the fourth quarter,Houston had 24.3M SF of vacantindustrial space citywide, 126K SF lessthan the previous quarter. Among themajor industrial corridors, the Northwestsubmarket has the largest amount ofvacant space with 5.5M SF (4.1%vacancy), followed by the Southeastsubmarket with 4.9M SF vacant (5.9%vacancy), the Southwest submarket with4.3M SF vacant (6.9% vacancy), and theNorth submarket with 3.9M SF vacant(5.5% vacancy).

Houston’s industrial construction pipelinehad 2.6M SF of projects underway at theend of the fourth quarter, including 1.9MSF of spec development. The largestproject under construction is a 475,000-SF state-of-the-art foodservicedistribution facility that will be the newGulf Coast regional distribution hub forthe Ben E. Keith Company. The facility isbeing constructed on an 82-acre tractlocated in Missouri City in the BeltwayCrossing Business Park. A list ofadditional buildings currently underconstruction can be found on Page 4 ofthis report. The largest spec project inthe pipeline is a 299,840-SF distributionwarehouse located on Langfield Rd. in theNorthwest industrial submarket.

Rental RatesHouston’s overall average quotedindustrial rental rate increased from$5.51 to $5.59 per SF NNN in the fourthquarter, increasing by 2.6% on a year-over-year basis from $5.45 per SF

NNN. By property type, the averagequoted NNN rental rates are as follows:$5.36 per SF for Distribution space;$4.36 per SF for Bulk Warehouse space;$7.08 per SF for Flex/Service space;with Tech/R&D space averaging $8.07per SF.

Absorption & Demand

Houston’s industrial market posted 1.4MSF of positive net absorption in the fourthquarter pushing the year-to-date total to6.2M SF.

Among Houston’s major industrialcorridors, the Northwest and Southeastsubmarkets outperformed all others in thefourth quarter, posting the highestpositive net quarterly absorption of 915KSF and 380K SF respectively. TheSouthwest submarket followed with 280KSF of positive net absorption.

There were several major tenant move-ins contributing to net absorption gains inthe fourth quarter, including Francesca’sCollections, Inc. (217,869 SF); See Notes(197,708 SF); Floor & Décor Outlets ofAmerican, Inc. (109,200 SF); Zoyto, Inc.(63,600 SF); Bayou Well Services(60,000 SF); and MI Group (36,960 SF).

Leasing

Houston’s industrial leasing activityreached 3.3M SF in the fourth quarter,pushing the year-to-date total to over13.2M SF. Some of Houston’s top fourthquarter industrial leases include:

Schenker, Inc.DCT Northwest 8 Distribution CtrDec-12 267,201 SF

PCS-CTS2

4949 WindfernNov-12 201,574 SF

Core Labs Instruments2

Windfern Distribution Center 1Oct-12 187,147 SF

Supply Chain Management13007 Pasadena FwyDec-12 137,000 SF

International Distribution Center2

Bay Area Business ParkNov-12 104,300 SF

Overland Distribution1,3

Port Crossing Commerce CenterOct-12 103,185 SF

International Distribution CenterBayport North Distribution CenterOct-12 100,000 SF

Parker UniformWest by Northwest Industrial ParkDec-12 67,089 SF

Jv Industrial Companies Ltd4100 Underwood RdDec-12 52,592 SF

Advanced Rig Services2

6750 Bender RdNov-12 51,040 SF

Noah’s Manufacturing6028 NavigationNov-12 44,000 SF

Windfield SolutionsBammel Business parkOct-12 41,250 SF

Severn Trent Environmental Services1,3

16680 Central GreenOct-12 41,170 SF

Katalyst Data Management, LLC1

10311 Westpark Dr.Dec-12 40,095 SF

Protect12130 Highway 3Nov-12 32,238 SF

Skyline Art Services, Inc.18011 Blankenship Dr.Dec-12 32,220 SF

1 Colliers International transaction2 Renewal3 Expansion4Sublease



HOUSTON INDUSTRIAL MARKET SUMMARY

The industrial sales statistics shownabove only include October andNovember 2012 sales. We expectDecember sales statistics to bepublished after the initial release dateof this report, at which time we willupdate the statistics.

Sales ActivityW.P. Carey & Co. sold a 49,600-SFflex light industrial building toArchway Properties, LP for anundisclosed amount. The Class Bproperty was built in 1985 and islocated at 500 Century Plaza Dr. inthe North Hardy Toll Rd industrialsubmarket. The building was 52.0%leased at the time of sale.

Allied Group L.P. sold a 46,000-SF Class B, industrial warehouseto Hose & Accessories Sales for$27 per SF. The building located at5731 Harvey Wilson Dr., is in theDowntown Inner Loop Industrialsubmarket. The new owner willoccupy the building.

Sharewell Properties, L.P. sold a15,900-SF, Class B, flex lightindustrial building to MichaelNguyen for $76 per SF. Thebuilding is located at 12200 W LittleYork Rd. in the West Outer LoopIndustrial submarket. The propertywas 100% leased at the time ofsale.

DriveTime Automotive Group, Inc.purchased a 51,000-SF Class B,showroom warehouse from EastFreeway Properties Llc for $68 perSF. The property is located at6335 Southwest Fwy in the Hwy59/Hwy 90 Industrial submarket.The new owner will occupy thebuilding.

Market Rentable AreaDirect

Vacant SF

Direct Vacancy

Rate

Sublet Vacant SF

Sublet Vacancy

Rate

Total Vacant SF

Total Vacancy

Rate

4Q12 Net Absorption

YE 2012 Net Absorption

4Q12 Completions

2012 Completions

SF Under Construction

Greater Houston Total 482,535,159 24,271,066 5.0% 592,377 0.1% 24,863,443 5.2% 1,440,472 6,245,393 949,497 4,017,344 2,554,598

NW Inner Loop 11,738,184 545,998 4.7% 22,200 0.2% 568,198 4.8% (103,966) (32,041) - - -

Downtown 31,839,034 1,713,109 5.4% - 0.0% 1,713,109 5.4% 139,780 88,523 38,232 38,232 -

North Inner Loop 5,185,017 475,369 9.2% - 0.0% 475,369 9.2% (40,000) 35,641 - - -

SW Inner Loop 7,527,531 134,013 1.8% - 0.0% 134,013 1.8% (11,100) 19,756 - - -

Total Inner Loop 56,289,766 2,868,489 5.1% 22,200 0.0% 2,890,689 5.1% (15,286) 111,879 38,232 38,232 -

North Fwy/Tomball Pky 14,537,557 1,139,243 7.8% - 0.0% 1,139,243 7.8% (34,470) 516,754 120,670 533,913 299,011

North Hardy Toll Rd 25,165,275 1,235,023 4.9% - 0.0% 1,235,023 4.9% (41,024) 471,457 - 376,758 738,751

North Outer Loop 17,862,050 782,014 4.4% - 0.0% 782,014 4.4% 96,767 635,366 - 232,470 25,000

The Woodlands/Conroe 13,539,822 746,425 5.5% - 0.0% 746,425 5.5% 110,967 45,254 65,000 65,000 -

Total North Corridor 71,104,704 3,902,705 5.5% - 0.0% 3,902,705 5.5% 132,240 1,668,831 185,670 1,208,141 1,062,762

Northeast Hwy 321 1,188,527 1,980 0.2% 7,500 0.6% 9,480 0.8% 0 0 - - -

Northeast Hwy 90 15,728,690 415,106 2.6% 129,000 0.8% 544,106 3.5% (124,510) (41,255) - 20,000 20,000

Northeast I-10 3,901,655 126,972 3.3% - 0.0% 126,972 3.3% 1,492 29,058 - - -

Northeast Inner Loop 11,542,388 722,240 6.3% - 0.0% 722,240 6.3% (338,652) (68,073) - - -

Total Northeast Corridor 32,361,260 1,266,298 3.9% 136,500 0.4% 1,402,798 4.3% (461,670) (80,270) - 20,000 20,000

Hwy 290/Tomball Pky 15,178,208 719,603 4.7% 25,636 0.2% 745,239 4.9% 52,647 89,336 - 198,555 52,000

Northwest Hwy 6 4,163,324 107,827 2.6% 11,520 0.3% 119,347 2.9% (1,435) 28,332 - 40,452 -

Northwest Inner Loop 60,616,406 2,669,448 4.4% 75,590 0.1% 2,745,038 4.5% 609,467 1,022,827 65,400 332,673 150,000

Northwest Near 16,450,213 678,005 4.1% 83,051 0.5% 761,056 4.6% 2,627 678,287 112,653 377,183 317,840

Northwest Outlier 13,005,394 373,837 2.9% 49,055 0.4% 422,892 3.3% 32,804 21,193 26,480 48,980

West Outer Loop 22,911,320 650,154 2.8% 31,897 0.1% 682,051 3.0% 219,320 1,098,523 149,842 217,677 58,250

Total Northwest Corridor 132,324,865 5,198,874 3.9% 276,749 0.2% 5,475,623 4.1% 915,430 2,938,498 354,375 1,215,520 578,090

South Highway 35 30,995,323 1,331,793 4.3% 23,600 0.1% 1,355,393 4.4% 167,242 (84,143) 66,841 224,341 87,975

South Inner Loop 13,360,202 589,701 4.4% - 0.0% 589,701 4.4% 41,579 (25,679) - - -

Total South Corridor 44,355,525 1,921,494 4.3% 23,600 0.1% 1,945,094 4.4% 208,821 (109,822) 66,841 224,341 87,975

East I-10 Outer Loop 15,623,397 115,535 0.7% - 0.0% 115,535 0.7% 2,000 62,700 - - -

East-SE Far 46,895,170 4,429,353 9.4% 36,488 0.1% 4,465,841 9.5% 339,217 932,997 62,115 862,915 292,771

SE Outer Loop 20,410,167 326,802 1.6% - 0.0% 326,802 1.6% 38,940 273,915 - - -

Total Southeast Corridor 82,928,734 4,871,690 5.9% 36,488 0.0% 4,908,178 5.9% 380,157 1,269,612 62,115 862,915 292,771

Highway 59/Highway 90 21,768,198 1,147,815 5.3% - 0.0% 1,147,815 5.3% 55,347 359,554 223,000 282,227 475,000

Southwest Far 10,217,779 901,597 8.8% - 0.0% 901,597 8.8% 120,156 88,488 19,264 69,713 38,000

Southwest Outer Loop 12,714,944 893,583 7.0% 4,240 0.0% 897,823 7.1% 27,988 (18,854) - - -

Fort Bend County/Sugar Land 18,469,384 1,298,521 7.0% 92,600 0.5% 1,391,121 7.5% 77,289 17,477 - 96,255 -

Total Southwest Corridor 63,170,305 4,241,516 6.7% 96,840 0.2% 4,338,356 6.9% 280,780 446,665 242,264 448,195 513,000

Houston Industrial Market Statistical Summary4th Quarter 2012



4Q 2012 Industrial Under Construction – 20,000 SF or greater

4Q 2012 Industrial Deliveries - 20,000 SF or greater

Submarket Cluster Submarket Building Address RBA % Leased DeveloperEstimated Delivery

Southwest Corridor Ind Hwy 59/Hwy 90 1001 Cravens Rd 475,000 100.0 Ben E Keith Jan-13

Northwest Corridor Ind Northwest Near 7310 Langfield - Bldg 200 299,840 0.0 Avera Companies Apr-13

North Corridor Ind North Hardy Toll Rd Airtex Dr & I-45 267,113 0.0 DCT Industrial Trust Aug-13

Southeast Corridor Ind East-SE Far 1902 S 16th St 261,291 0.0 ML Realty Partners Jan-13

North Corridor Ind North Hardy Toll Rd 16330 Central Green Blvd - Bldg 10 163,600 0.0 Liberty Property Trust Feb-13

North Corridor Ind North Fwy/Tomball Pky 14300 Hollister Rd 111,065 76.8 Liberty Property Trust Jan-13

North Corridor Ind North Fwy/Tomball Pky 12101 Cutten Rd 101,123 100.0 Clay Development Feb-13

North Corridor Ind North Hardy Toll Road 250 Century Plaza Dr 91,520 0 Avera Companies Jul-13

North Corridor Ind North Fwy/Tomball Pky 7505 Bluff Point Dr 86,823 0.0 EastGroup Properties Jan-13

Northwest Corridor Ind Northwest Inner Loop 1315 W Sam Houston Pky N - Bldg 1 70,000 0.0 Caldwell Companies Feb-13

North Corridor Ind North Hardy Toll Rd 2330 Peyton Rd 56,915 0.0 Capital Commercial Jan-13

North Corridor Ind North Hardy Toll Rd 4741 World Houston Pky 56,513 0.0 EastGroup Properties Feb-13

South Corridor Ind South Hwy 35 2425 Mowery Rd - Bldg A 53,000 0.0 Colliers International Apr-13

North Corridor Ind North Hardy Toll Rd 4721 World Houston Pky 45,040 0.0 EastGroup Properties Feb-13



Southwest Corridor Ind Southwest Far 1145 Highway 90 A 38,000 0 Jacob Realty Group Jun-13

Northwest Corridor Ind West Outer Loop 5915 Brittmoore Rd 35,750 0 Triten Real Estate Partners Mar-13

North Corridor Ind North Hardy Toll Rd 1368 E Richey Rd 33,000 0.0 Northwinds Commercial Feb-13

Southeast Corridor Ind East-Southeast Far 11804 Fairmont Pky 31,480 0 VIGAVI Realty Feb-13

North Corridor Ind North Hardy Toll Road 20221 Carriage Point Dr 25,050 100 The National Realty Group, Inc. Mar-13

North Corridor Ind North Outer Loop 6010 Dwyer Dr 25,000 0 Nobel House Real Estate Feb-13

Northwest Corridor Ind West Outer Loop 7530 Fairview Rd 22,500 100 Metroway Commercial Realty Apr-13

Northwest Corridor Ind Hwy 290/Tomball Pky 10030 Fairbanks North Houston Rd 20,000 100 The National Realty Group, Inc. Jan-13

Northeast Corridor Ind Northeast Hwy 90 14452 Smith Rd 20,000 0 Capital Real Estate Commercial, Inc. Jan-13

Submarket Cluster Submarket Building Address RBA % Leased Developer Delivered

Southwest Corridor Ind Hwy 59/Hwy 90 13443 S Gessner 116,480 100.0 Stream Realty Partners Oct-12

Southwest Corridor Ind Hwy 59/Hwy 90 13513 S Gessner Dr 91,520 0.0 Stream Realty Partners Nov-12

North Corridor Ind North Fwy/Tomball Pky 14400 Hollister Rd 88,170 70.6 Liberty Property Trust Dec-12

Southern Corridor Ind South Hwy 35 9225 Park South Vw 66,841 100.0 Loomis Armored US Dec-12

North Corridor Ind Woodland/Conroe 3375 Pollock Dr 65,000 100.0 KDW Oct-12

Northwest Corridor Ind Northwest Near 6410 Langfield Rd - Bldg F 41,641 0.0 Capital Commercial Nov-12

Inner Loop Corridor Ind Downtown 6363 Navigation Blvd 38,232 100.0 GSL Welcome Group Dec-12

Northwest Corridor Ind West Outer Loop 12223 FM 529 37,875 0.0 Texas Development Company Dec-12

Northwest Corridor Ind Northwest Inner Loop 9855 Genard Rd 36,000 100.0 First Industrial Texas Dec-12

Northwest Corridor Ind West Outer Loop 12014 FM 529 - Building B 35,000 0.0 United Equities, Ltd. Dec-12

Southeast Corridor Ind East-SE Far 10200 New Decade Dr 32,000 0.0 Unknown Oct-12

Northwest Corridor Ind Northwest Near 6410 Langfield Rd - Bldg E 30,070 0.0 Clay Development Dec-12

Southeast Corridor Ind East-SE Far 5349 Bay Oaks Dr 30,115 0.0 Unknown Dec-12

Northwest Corridor Ind Northwest Inner Loop 10892 Shadow Wood 29,400 0.0 Greater Houston Commerical Dec-12

Northwest Corridor Ind West Outer Loop 12601 FM 529 27,267 100.0 Challenger Tire Topete, Inc. Dec-12

Northwest Corridor Ind Northwest Outlier 21414 Julie Marie Ln 26,480 0.0 Ivest Dec-12

Northwest Corridor Ind West Outer Loop 14040 West Rd 25,200 0.0 Nickson Industrial Dev Llc Dec-12

Northwest Corridor Ind West Outer Loop 12010 FM 529 - Bldg A 24,500 100.0 United Equities, Ltd. Dec-12

Northwest Corridor Ind Northwest Near 6511 West Little York Rd 22,942 0.0 Levey Development Dec-12


Accelerating success.

COLLIERS INTERNATIONAL | HOUSTON1300 Post Oak BoulevardSuite 200Houston, Texas 77056Main +1 713 222 2111

5COLLIERS INTERNATIONAL | P.

LISA R. BRIDGESDirector of Market Research HoustonDirect +1 713 830 2125Fax +1 713 830 [email protected]