Oil Prices Have Some Influence Over Warehouse Market

Land says it is the long-term supply and demand that shapes Houston’s market as a whole.

HOUSTON—Though not weakened as much as the office and manufacturing markets, oil prices can influence Houston’s warehouse/distribution market. Specifically, an analysis by NAI Partners shows that demand (net absorption) for warehouse/distribution space decreases with declines in Texas rig count. However, the oil industry only explains about 21% of net absorption. Yet, the oil industry, as measured by Texas rig count, does not explain vacancy, indicating that current availability of the warehouse/distribution market is shaped by other factors. Supply and demand in recent years have shaped current vacancy and availability of warehouse/distribution space, with important differences among submarkets. Houston has 398 million square feet of warehouse/distribution space spread across 30 submarkets and 10 submarket clusters, says NAI Partners. About 62% of this stock inventory occurs among just the Northwest (115 million square feet), North (68 million square feet) and Southeast Corridors (64 million square feet), which differ greatly in supply and demand. The Northwest market has remained relatively stable with new supply balanced or exceeded by demand from 2006 to 2015, resulting in vacancy at low levels of 3.7% to 5.4% with a modest increase to 6.7% in 2016.  The North Corridor, on the other hand, has experienced new deliveries since 2011 that have not been matched by net absorption, leading to an overbuilt market whereby vacancy increased from 4.9% in 2012 to 9.3% in 2015.  In contrast, following an 11.6% peak in vacancy in 2009, the Southeast Corridor has strengthened each successive year with demand exceeding new deliveries, resulting in currently low 3% to 4% vacancy. Collectively, these analyses show that, while the oil industry can impact short-term net absorption for warehouse/distribution products, it is the long-term supply and demand that shapes Houston’s market as a whole. Travis Land, SIOR , partner, NAI Partners, tells GlobeSt.com: “The decline in oil prices has negatively impacted demand for warehouse/distribution space in Houston, but it only explains about 20% of that decline. On the other hand, low supply and high demand for warehouse/distribution space has led the Southeast submarket to behave in an opposite manor, in part due to the expansion in the petrochemical industry.”