East/Southeast Far Houston Industrial Market Report
Market Overview
The East-Southeast Far industrial submarket is Houston’s largest, containing 115 million square feet of inventory and accounting for roughly 14% of Houston’s total industrial space. It includes Pasadena and areas west of Baytown, such as Seabrook, Bacliff, Texas City, and Galveston. The Port of Houston, one of the world’s largest ports, is the key driver of industrial demand in this submarket. The port supports 3.2 million jobs nationwide and generates an economic impact exceeding $800 billion.
East-Southeast Far By the Numbers
- Vacancy Rate: 10.5%
- Asking Rent Growth: 0.7%
- Deliveries in SF: 6.2M
- Net Absorption in SF: 2.1M
- Sales Volume: $29.6M
Last 12 Months | CoStar Group
Market Performance
After strong leasing activity in recent years, the East-Southeast Far industrial market has seen a slowdown. Over the past 12 months, 6.2 million square feet were completed versus 2.1 million square feet absorbed. This mismatch pushed the overall vacancy rate to 10.5% as of Q3 2024, near three-year highs. However, only 25% of the 2.8 million square feet under construction remains available for lease, suggesting vacancy rates may stabilize soon. Logistics properties are seeing the highest vacancy rates (11.6%), while flex (7.8%) and specialized industrial properties (3.4%) are seeing more moderate vacancies.
Rent
As of Q3 2024, the market asking rent was $8.77 per square foot. Rent growth has decelerated to 0.7% year-over-year, its slowest pace since 2010. Expectations are for rent growth to moderate further in the coming months, potentially dipping below 0% by year-end. However, with industrial construction starts at 10-year lows, rent growth may reaccelerate in 2025-26 as demand outpaces new supply.
Vacancy and Construction
The overall availability rate stands at 11.0%. Shallow-bay spaces under 25,000 square feet are performing better, with a 7.2% availability rate. Blocks larger than 500,000 square feet have the highest availability at 16%. Properties within a 15-minute drive of the port’s busiest terminal, Barbours Cut, have just a 5% availability rate.
The East-Southeast Far industrial submarket is nearing the end of a record development wave. As of Q3 2024, there was 2.8 million square feet under construction. Construction starts have pulled back sharply due to high borrowing and construction costs. New supply is expected to fall to a three-year low in 2024 and a 12-year low in 2025. The majority of recent construction has focused on logistics facilities, which now account for about 80% of the submarket’s inventory.
Sales
The average cap rate for the East-Southeast Far submarket was 7.6% in Q2 2024. Sales activity has slowed due to high borrowing costs, tighter lending standards, and wide bid-ask spreads. The submarket averaged 130 transactions annually over the past five years, with 94 in the past 12 months. Most institutional-grade properties now trade at cap rates between 5% and 6.25%, up from the mid-4% range in recent years. Smaller properties under 30,000 square feet typically trade at 7.5% to 9% cap rates or higher.
