TEXAS SNAPSHOT, FEBRUARY 2010

Houston Industrial Market

TREB: What major trends are affecting Houston’s industrial market?

Talhelm: Currently, Houston’s unemployment is 8.2 percent — much lower than the national average. Although we lost 93,000 jobs in 2009, overall the market is calm. Job losses were concentrated in the construction and manufacturing sectors. In 2010, we anticipate minimal job growth focused in the education, healthcare and government sectors, according to the Greater Houston Partnership.

TREB: How would you characterize recent leasing activity? What about investment activity? What recent transactions (sales or leases) have impacted your market?

Talhelm: Current leasing activity in the industrial market has been dominated by short-term renewals. When a company has relocated it has been due to consolidation and, in some cases, the opportunity to upgrade space. In addition, activity has been driven by companies currently operating in the Houston market. Investment sales are minimal at best. They are negatively affected by the lack of product and financing restrictions.

TREB: What is the state of the development market right now?

Talhelm: In 2009 several warehouse projects were completed ending the development of projects over the previous 24 months. No new speculative projects are under consideration except for specific build to suit facilities. Vacancy rates are high in the newly constructed facilities and, until absorption takes place, no new construction is planned.

TREB: What submarket or area is a hotspot for commercial real estate activity? Who are the major players?

Talhelm: The majority of lease activity has been concentrated in the northwest quadrant with additional activity in the far southeast submarket. The northwest activity has been centered around renewals in place, while some relocations from Class B/C buildings to Class A buildings have occurred in the far southeast. Statistically, Houston’s vacancy rates are stable. However, due to the physical size of the Houston market, occupiers of space need to be aware of the wide range of vacancies submarket by submarket in order to realize incentives offered by the landlords.

TREB: What are your thoughts for the New Year?

Talhelm: The industrial market in Houston will remain flat during 2010. The market for warehouse space will continue to be negatively impacted by the addition of sublease space. The manufacturing sector will also remain stagnant, and speculative crane-ready buildings will continue to be difficult to lease or sell.

— John Talhelm is a senior vice president with Jones Lang LaSalle in Houston.

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