Houston’s industrial delivery space gap is expected to drive down vacancy rates in 2025

The industrial real estate market has seen significant growth over the past five years (2019-2023). Annual new construction deliveries have averaged 22.6 million square feet (msf), significantly higher than the pre-pandemic average of 11.9 msf. While 2024 deliveries are expected to moderate, they'll still exceed pre-pandemic levels.

The supply pipeline has also contracted, with fewer projects under construction than before. Similarly, absorption has been robust, averaging 24.2 msf over the past five years. Despite a projected decline in 2024, absorption will remain notably higher than pre-pandemic levels. Historical trends suggest a potential absorption of around 18.6 msf.

The combination of strong demand and constrained supply limits expansion opportunities for users, likely driving rent growth. Historically, economic events have created "new space gaps," where demand outpaces supply, leading to declining vacancies. Given current economic conditions, including inflation and higher interest rates, another new space gap is anticipated on the horizon.