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The Northwest Corridor is the territory from the 6-10 loop and fans out west between 290 and I-45 about halfway to beltway 8. This is by far one of the largest industrial markets in Houston with over 155 million SF of existing Industrial inventory on the market which only about 9 million SF is vacant. To put this in perspective, the downtown Houston market which is one of the largest office markets in the City has less than half of the industrial inventory of at 60 million SF of space. There are about 5,000 industrial buildings in this market and the vacancy rate is at 6%, making things a little tight for tenants looking to relocate or expand in this market.
While we consider the vacancy rate low, historically, vacancy rates have been lower. In the first quarter of 2013 we saw the Vacancy rate for this market at about 4% and have seen new construction keep up with demand until the first quarter of 2015. We believe this was a market reaction to the price of oil which resulted in 1.5 million SF of new construction being introduced on the market in 2015, but only 500k SF of positive absorption or new tenants coming into the market. The last quarter in 2015 was the only quarter experienced negative absorption in years, it appears as things are back on track for the first quarter of 2016.
Vacant space has stayed pretty consistent with 7 million SF of space available to lease the first quarter of 2015 and about 9 million SF of space to lease the 1st quarter of 2016. There is very little sublet space available on the market, so businesses looking for shorter term leases may have to look toward the outer markets for those opportunities.
The average rental rate in this market has stayed consistent this past year with a very small drop in rent from $7.15 bucks a foot average rent down to $7 bucks a foot. In 2012, the average rate was $5.73 bucks a foot and for the past 4 years we have seen a slow, consistent creep up in rents most of those years. We believe that losing 500k of tenants during the 4th quarter of 2015 combined with the addition of new inventory to the market that year was the culprit for the slight decline in the average rent.
Overall, the Northwest Market is a very large industrial market that is steadily growing with new construction, the vacany rates are stable and the market is diverse with no particular sector dominating the market. This allows for a good mix of stable tenants in long term leases, which is great for tenants and landlords alike. For Tenants looking to capture value, look to the older inventory in this market and look early. With vacancy rates this low, opportunities don’t last as long as other markets. From an investment perspective, these properties are great long term plays as the market has proven itself with consistent growth and the location in the Houston market is convenient for many businesses.
So what do you think of the Northwest Industrial Market? Would you take your business here? Share your thoughts in the comments section and we will join you there!