With Strong Absorption, Industrial Park is Fully Occupied

US logistics real estate occupiers are leasing space more quickly than new supply is delivered.

HOUSTON—According to Prologis , demand for logistics real estate continues to outpace economic growth, with net absorption in the first half of 2016 marking the strongest start to the year since 2000. Net absorption totaled 125 million square feet during this time, in spite of mixed economic indicators and financial market volatility. With logistics real estate occupiers leasing space more quickly than new supply is delivered, the national vacancy rate declined 20 basis points to 5.2% in the second quarter of 2016. Improvement in the latest reading from Prologis’ proprietary index of customer activity, the US Industrial Business Indicator (IBI), reflects accelerating growth and a high level of space utilization. With the IBI and some economic indicators firming in June, the outlook for cyclical demand is positive. Additionally, structural trends such as expanding e-fulfillment needs should continue to augment demand. At the same time, development activity, while increasing, appears poised to lag demand through the near term. Prologis Research forecasts 225 million square feet of net absorption in 2016, tempering to 200 million square feet in 2017. On the supply side, deliveries are expected to total 185 million square feet in 2016, rising to 215 million square feet in 2017. In this scenario, vacancies would remain at the current historically low level, allowing for further rent growth in excess of inflation. For Prologis, this translates into continued occupancy for its industrial properties across the country. An example of one of those properties in the Prologis portfolio is West by Northwest Industrial Park. This asset is 100% occupied with the completion of a new 31,000-square-foot industrial lease to Black Horse LLC . Black Horse is a joint venture between Caterpillar Inc. and Ariel Corp. that provides well service pressure pumping products and solutions within the global oil and natural gas industry. Transwestern managing director Brian Gammill and senior vice president Darryl Noon represented the landlord, Prologis Targeted US Logistics Fund LP , in the transactions. “We are pleased to bring this assignment to full occupancy,” said Noon. “Despite some of the national attention Houston is receiving regarding economic uncertainties, we are seeing strong activity in this submarket.” Located in Northwest Houston at the intersection of West Little York Road, Gessner Road and Hempstead Highway, the Prologis portfolio within the park consists of more than 2 million square feet and is comprised of 20 buildings. Noon tells GlobeSt.com: “We are seeing strong absorption in Houston and were pleased to work with Prologis on this project.”