Houston Industrial Market Report
Market Overview
The strategic locations of the Northern Outer Loop, Northeast Hardy Toll Road, and Northeast Hwy 90 submarkets near major roadways and airports in Houston make them highly sought-after industrial destinations due to their accessibility and proximity to growth areas.
The North Outer Loop is particularly well-suited for tenants seeking to lease small spaces, often for built-to-suit purposes. The stock of the Hardy Toll Road submarket has nearly doubled over the past decade and continues to expand rapidly. Additionally, Northeast Highway 90 is currently experiencing a significant increase in supply, presenting numerous lease-up opportunities.
North Outer Loop
By the Numbers
- Deliveries in SF: 369K
- Net Absorption in SF: 255K
- Vacancy Rate: 5.2%
- Asking Rent Growth: 1.4%
Last 12 Months | Source: CoStar Group
Vacancy
The Northern Outer Loop is between several of Houston’s major roadways, including the Hardy Toll Road and interstates 69, 45, and 610. Additionally, The George Bush Intercontinental Airport is only a 15-minute drive north, making this area an appealing industrial destination.
As of Q3 2024, vacancy rates stand at 5.2%, comparable to the all-time average annual vacancy rate of 5.1%. Looking ahead, heavy supply-side pressure is not anticipated, keeping vacancies relatively steady. Tenants driving market demand are those needing 15,000 square feet or less. Out of 30.3 million square feet of inventory, around two-thirds are properties in that size range.
Rent
The asking rent in the Northern Outer Loop submarket is $8.30/SF, which is in line with Houston’s average industrial rents and reflects a stable and competitive market. However, it is important to note that rent growth reached a peak of 4.9% at the end of 2023. Since then, it has begun to slow, and at 1.3% year-over-year, it now falls below the 10-year average of 3.1%.
Sales
Private and national investors make up most of the real estate buyer pool, with occasional participation from institutional and foreign investors. However, transaction activity remains below historic levels due to high borrowing costs, stricter financing, and wide bid-ask spreads. Currently, well-leased warehouses under 40,000 square feet priced at or under $5 million are popular investments for the Houston industrial market.
Northeast Hardy Toll Road
By the Numbers
- Deliveries in SF: 2.5M
- Net Absorption in SF: 3.5M
- Vacancy Rate: 6.6%
- Asking Rent Growth: 1.4%
Last 12 Months | Source: CoStar Group
Vacancy
The Northeast Hardy Toll Road submarket continues to expand. Developers completed 3.5 million square feet in the past year, and another 800,000 square feet are under construction as of Q3 2024. Most new builds have no tenant, putting upward pressure on the overall vacancy rate. However, demand has kept up; as of Q3 2024, submarket vacancy sits at 6.6%, slightly above the submarket 10-year average of 8.7%.
Due to strong industrial demand and light construction, the vacancy rate is experiencing a slight dropoff compared to recent years. However, the submarket’s vacancy and availability rates of 7.8% and 9.0% are above the metro average of 7.3% and 9.0%, respectively.
Rent
The current asking rent in the Northeast Hardy Toll Road submarket is $8.70/SF, similar to the neighboring submarket Northeast Highway 90. Year-over-year rent growth is currently at 1.4%, a significant decrease from the peak of 5.3% observed at the end of 2023. Rent growth is expected to continue slowing as the submarket moves closer to the historical average of 2.2%.
Sales
The submarket has a healthy turnover, with prices slightly above the metro average due to its relatively new inventory. However, transaction activity remains below historic levels due to higher borrowing costs and tight lending standards, following national and regional trends. Similar to the North Outer Loop submarket, the most preferred industrial investments now are warehouses under 40,000 square feet priced at $5 million or less.
Over the past five years, the submarket has seen an average of 69 transactions annually, with 55 in the past 12 months.
Northeast Highway 90
By the Numbers
- Deliveries in SF: 3.8M
- Net Absorption in SF: 1.6M
- Vacancy Rate: 11.2%
- Asking Rent Growth: 1.1%
Last 12 Months | Source: CoStar Group
Vacancy
The Northeast Hwy 90 Submarket is accessible via the 610 Loop, Interstate 45, the Grand Parkway, and Highway 90. It is also situated close to Interstate 10, making it favorable in terms of entry and exit points.
In recent years, the submarket has gained a reputation as a rapidly growing, high-demand area for industrial spaces. Over the last three years, 5.4 million square feet have been added, and another 160,000 square feet are underway. The overall availability rate of 13.7% has more than doubled since the end of 2022. Additionally, the submarket has experienced 1.8 million square feet of new supply in the last year, with another two million square feet anticipated over the next year. As two-thirds of that is available for lease, the current 11.2% vacancy rate is anticipated to remain elevated as the submarket works to absorb the new product.
Rent
Market rent in the Northeast Highway 90 submarket is $8.60/SF, which aligns with the Houston metro average and is comparable to rents in the adjacent North Hardy Toll Road submarket. Annual rent growth has slowed in recent quarters from its 4.9% peak in mid-2022 to 1.1% today.
Sales
The Northeast Highway 90 submarket has become increasingly attractive to investors interested in taking advantage of the area’s diverse tenant base and strong demographics. Local and national investors are driving transaction activity for the Houston industrial market. Currently, the preferred investment includes warehouses under 25,000 square feet, trading below $4 million.
