Net Absorption Follows Historical Trend
The McAllen market saw a 24,000 sq. ft. year-over-year increase in net absorption but a quarterly decline of more than 200,000 sq. ft. Despite the quarterly decrease, Q1 2018 followed the first quarter net absorption trend that began in 2012: positive, but less than 100,000 sq. ft. The largest contributor to net absorption was the delivery of a 60,000 sq. ft. cold storage build-to-suit (BTS) in the Pharr submarket. Five other absorption activities were registered, four new leases and one user sale.
Record-Low Vacancy, Construction Picks Up
The market-wide vacancy rate of 3.0% was just below the Q4 2017 record-low of 3.1%. Year-over-year, when the rate stood at 6.1%, vacancy declined by more than 50%. Class A vacancy also decreased substantially. The current Class A vacancy of 2.9%, a record low and unchanged since Q4 2017, fell from 6.5% a year ago and from 10.1% in Q1 2016. A 60,000 sq. ft. cold storage BTS was delivered in Q1 2018 and a 50,000 sq. ft. speculative project in the Edinburg submarket remained under construction. The quarter also saw the start of five new BTS developments, all located in the Pharr submarket. Four of the newly started BTS projects are cold storage facilities and, together, total about 80,000 sq. ft. The fifth BTS, Phase 1 of the Pharr Logistics Center, is a 105,000 sq. ft. warehouse, part of which will be available for lease.
Asking Rates Steady After Year-Long Growth
Compared to Q1 2017, market-wide asking rates increased by $0.40 per sq. ft. per year and Class A increased by $0.33 per sq. ft. per year. The vacancy rate downward trend slowed by the end of 2017 and the delivery of speculative developments in the second half of 2017 relieved some of the upward pressure on asking rates. Market-wide asking rates increased by $0.01 per sq. ft. compared to Q4 2017 while Class A rents increased by $0.02 per sq. ft.