Market Brief...
Houston
INDUSTRIAL
1Q18 Property Pictured Above: 5910 West by Northwest Boulevard, Houston, Texas
HOUSTON INDUSTRIAL MARKET BRIEF 1Q 2018
TABLE OF CONTENTS 1. HOUSTON INDUSTRIAL SUBMARKETS
1 2 3
2. OVERALL HOUSTON MARKET A. Industrial Trends & Transactions
B. Facts and Figures
2. SUBMARKET INTELLIGENCE A. Far West & Katy
B. C. D. E. F. G.
Northwest Houston North Houston Near East Houston Port Area South Houston Southwest Houston
3
HOUSTON HLC SUBMARKET COVERAGE
TOMBALL PRAIRIE VIEW SPRING
NORTH 45,865,711 SF
CYPRESS
HUMBLE
GEORGE BUSH INTERCONTINENTAL AIRPORT
LAKE HOUSTON
NORTHWEST 139,946,842 SF MONT BELVIEU
NEAR EAST 47,252,223 SF BROOKSHIRE
KATY
FAR WEST/KATY 15,062,541 SF
SOUTHWEST 45,032,563 SF
HOUSTON SHIP CHANNEL
GALLERIA
PORT AREA 51,852,731 SF
BAY TOWN
PASADENA
MEDICAL CENTER
LA PORTE
SOUTH 38,410,327 SF
SUGAR LAND
HOBBY AIRPORT
ELLINGTON AIRPORT
RICHMOND
TRINITY BAY
MISSOURI CITY
PEARLAND
LEAGUE CITY
HLC HOU
INDUSTRIAL TRENDS & TRANSACTIONS
INDUSTRIAL MARKET EXPERTS
HLC OUTLOOK The Houston industrial real estate market is carrying a large amount of momentum into the second quarter of 2018, and will continue to be one of the strongest markets in the country due to rapid population growth, increasing demand for lastmile distribution, and the resurgence and expansion of the petrochemical industry along the Texas Gulf Coast. With a vacancy rate of approximately 5.3%, and measured speculative development in the pipeline, leasing fundamentals should remain strong throughout 2018.
TRENDS & TRANSACTIONS • Large distribution warehouses continue to attract strong interest by institutional owners
KELLY LANDWERMEYER
JOHN KRUSE
Managing Principal klandwermeyer@hlhouston.com 713.602.3762
Market Director jkruse@hlhouston.com 713.602.3756
• Speculative development is increasing • Due to continued population growth and consumer demand, e-commerce companies are investing in bulk, last-mile fulfillment centers across the Houston market
Absorption
BRAD SEGRETO
CRAIG BEAN
Market Associate bsegreto@hlhouston.com 713.602.3758
Market Associate cbean@hlhouston.com 713.602.3752
vs. Prev. Qtr
vs. 12 Mths Ago
1,729,695
492,119
2,796,652
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
5.3%
5.3%
5.4%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
3,642,193
6,375,305
6,677,427
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
8,114,230
7,255,120
4,725,828
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,772,697
500,000
3,131,531
5
HLC HOU FACTS & FIGURES
Market
Existing Inventory # Bldgs.
Total RBA
4,000,000 3,500,000 3,000,000
5.5% 2,500,000 2,000,000 5.0%
1,500,000 1,000,000
Vacancy Direct SF
OVERALL HOU
6.0%
500,000 4.5%
Total SF
0
Vac. %
-500,000 -1,000,000
4.0%
Far West/Katy
124
15,062,541
543,003
560,439
3.7%
1,656
128,665,166
7,421,803
8,053,754
6.3%
North
629
52,287,442
3,576,475
3,954,736
7.6%
Near East
507
47,252,223
1,648,188
1,670,688
3.5%
Port Area
376
51,852,731
1,300,826
1,608,326
3.1%
Northwest
South
505
38,410,327
1,282,303
1,302,598
3.4%
Q1 15
Q2 15
Q3 15
Q4 15
Q1 16
Q2 16
Q3 16
Absorption
Q4 16
Q1 17
Q2 17
Q3 17
Q4 17
Deliveries
Q1 18
Vacancy
VACANCY - OVERALL HOU 7.0%
5.3%
6.0%
5.0%
4.6%
4.9%
4.5%
4.0%
3.0%
Southwest Totals
632
45,032,563
2,792,319
2,978,189
6.6%
4,429
378,562,993
18,564,917
20,128,730
5.3%
2.0%
1.0%
0.4%
0.1%
0.0% Q1 15
Q2 15
*Vacancy total will differ from overall total slightly due to discrepancies in overall square footage and the sum of each submarket’s square footage.
Q3 15
Q4 15
Q1 16
Q2 16
Q3 16
Direct
Q4 16
Q1 17
Q2 17
Q3 17
Q4 17
Sublet
Q1 18
Total
ABSORPTION - OVERALL HOU 9,000,000 8,000,000
YTD Net Absorption
YTD Deliveries
Under Construction SF
YTD Leasing Activity
Far West/Katy
1,272,696
1,016,000
956,665
76,326
Northwest
-2,198,234
298,100
2,831,782
8,685,460
447,597
0
978,700
696,722
Market
North Near East
-356,456
0
0
270,952
Port Area
621,994
460,402
3,826,490
535,215
South
-13,454
26,520
71,593
230,321
Southwest
-209,574
0
550,000
517,448
7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 -1,000,000 Q1 15
Q2 15
Q3 15
Q4 15
Q1 16
Q2 16
Q3 16
Q4 16
Total Net
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Leasing Activity
CONSTRUCTION - OVERALL HOU 9,000,000 8,000,000 7,000,000
Totals
-435,431
1,801,022
9,215,230
11,012,444
6,000,000 5,000,000
Source: CoStar 2018 1Q Industrial Report
4,000,000 3,000,000 2,000,000 1,000,000 0 Q1 15
Q2 15
Q3 15
Q4 15
Q1 16
Q2 16
Delivered Inventory
Q3 16
Q4 16
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Under Construction
6
SUBMARKET INTELLIGENCE FAR WEST & KATY
HLC OUTLOOK The Far West/Katy industrial submarket follows along I-10 and stretches from Highway 6 out to Brookshire and up and down the newly developed Grand Parkway. The submarket continues to benefit from the population growth in the communities of West Houston, Cypress, Richmond, Fulshear, Brookshire, and Katy.
15,062,541 SF KATY
BROOKSHIRE
In 2013, Igloo completed its 535,000 SF building and in 2015, Mason Ranch finished its 373,000 SF building which was recently leased to Rooms-To-Go, which also has their 1 million SF distribution center in this submarket. In 2017, FedEx completed its 800,000 SF build-to-suit facility along the Grand Parkway. Perhaps most notable though is that construction recently wrapped up on Amazon’s 1 million SF distribution center in January. The new center is expected to create 1,000 jobs once fully operational.
Absorption
vs. Prev. Qtr
1,282,466
57,562
65,534
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
3.7%
5.8%
8.6%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
48,301
537,004
38,862
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
956,665
1,689,785
1,280,750
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,016,000
–
673,785 SF by Oakmont Industrial Group
• Mason Ranch Building II – 2240 N Mason Ranch Road – 282,880 SF by Exeter Property Group
LARGE EXISTING VACANCIES • 800 Koomey Road – 186,306 SF • 1325 S Creek Drive – 76,138 SF
–
VITAL STATS
12.0%
NEW DEVELOPMENTS • Oakmont West 10 – 525 Cane Island Parkway –
vs. 12 Mths Ago
1,325,000
11.0% 1,125,000
10.0% 9.0%
925,000
8.0% 725,000
7.0% 6.0%
525,000
5.0% 325,000
4.0% 3.0%
125,000
2.0% 1.0%
-75,000 Q1 15
Q2 15
Q3 15
Q4 15
Absorption
Q1 16
Q2 16
Q3 16
Q4 16
Deliveries
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Vacancy Source: CoStar 2018 1Q Industrial Report
Property Photo: Mason Ranch Building I, CoStar
SUBMARKET INTELLIGENCE NORTHWEST HOUSTON
GEORGE BUSH INTERCONTINENTAL AIRPORT
CYPRESS
HLC OUTLOOK
139,946,842 SF
The Northwest industrial submarket consists of approximately 140 million SF and is generally considered the most desirable submarket in greater Houston for the vast majority of tenants. Regarding new development, the Northwest submarket is the second most active submarket with only the Port submarket experiencing more new development currently. The 2.8 million SF under construction in the Northwest submarket is approximately one-third of the total current construction for the entire Houston industrial market. The vacancy rate for the Northwest submarket was 6.6% at the close of the first quarter. Looking forward, this submarket will continue to benefit from the rapidly expanding population in communities such as Cypress-Fairbanks, Tomball, and Katy. HOUSTON
Absorption
vs. Prev. Qtr
-230,620
-922,400
386,102
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
6.3%
5.9%
5.0%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
1,591,542
2,090,019
2,868,612
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
2,831,782
2,166,813
89,500
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
298,100
DEALS ON THE MARKET • 4414 Hollister Road – 234,215 SF – Georgia
vs. 12 Mths Ago
–
Pacific is the seller
• 1530 W Sam Houston Parkway North – 170,040 SF – National Oilwell Varco is the seller
• 4435 W 12th Street – 91,974 SF – Kennametal, Inc. is the seller
• 1501 Seamist Drive & 1440 Greengrass Drive – two
LARGE EXISTING VACANCIES • 9700 W Gulf Bank Road – 245,319 SF • 6315 West by Northwest Boulevard – 201,600 SF • 10901 Tanner Road – 195,951 SF • 6410 Langfield Road Building D – 154,661 SF • 3480 W 11th Street – 154,600 SF • 8802 Fallbrook Drive – 153,000 SF • 9010 West Little York Road – 152,624 SF
buildings totaling 655,763 SF (517,182 SF and 138,581 SF) – Goodman Distribution is the seller
223,628
Property Photo: 8802 Fallbrook Drive, CoStar
VITAL STATS
12.0%
1,400,000 1,200,000
11.0%
1,000,000 800,000
10.0%
600,000 400,000
9.0%
200,000 0
8.0%
-200,000 -400,000
7.0%
-600,000 Q1 15
Q2 15
Q3 15
Absorption
Q4 15
Q1 16
Q2 16
Q3 16
Q4 16
Deliveries
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Vacancy Source: CoStar 2018 1Q Industrial Report
NEW DEVELOPMENTS • Cutten Road Business Park – 11833 Cutten Road – 293,280 SF by Clay Development & Construction
• Northwest Logistics Center – 6751 N Eldridge
Parkway – 411,442 SF by Stream Realty Partners
• Union Crossing – 22533 NW Lake Drive – 231,839 SF by Carson Companies
• West Road Business Park – 8781 West Road Building 5 – 57,996 SF by EastGroup Properties, Inc.
• Fallbrook Pines Business Park – 660,073 SF by Clarion Partners and Trammel Crow
• First 290 at Guhn Road – 6913 Guhn Road – 126,250 SF by First Industrial
SUBMARKET INTELLIGENCE NORTH HOUSTON
HLC OUTLOOK GEORGE BUSH INTERCONTINENTAL AIRPORT
45,865,711 SF
The North Houston industrial submarket—defined as the area between Veterans Memorial Drive and Highway 59— provides a strategic location for companies looking for convenient access to George Bush Intercontinental Airport, as well as three of Houston’s critical thoroughfares: I-45, Sam Houston Tollway (Beltway 8), and Highway 59.
HUMBLE
The North Houston industrial submarket ended 2017 at approximately 93% occupancy after two consecutive quarters of strong absorption. This trend is expected to continue as speculative development activity remains focused on other submarkets and increased leasing velocity continues to chip away at the remaining first generation supply remaining. As vacancy decreases, rental rates are expected to return to more normal levels.
LAKE HOUSTON
Absorption
vs. Prev. Qtr
447,597
691,832
54,749
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
7.6%
8.4%
10.7%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
696,722
1,130,934
850,208
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
978,700
641,000
975,000
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
0
0
Services is the seller
• 711-713 Rankin Road – 81,014 SF – Gamble Simmons is the seller
NEW DEVELOPMENTS • Pine North Three – 7500 Volta Drive – 337,700 SF by Duke Realty Corporation
102,715
VITAL STATS
12.0%
DEALS ON THE MARKET • 18727 Kenswick Drive – 150,000 SF – DGM
vs. 12 Mths Ago
1,400,000 1,200,000 1,000,000
11.0%
800,000 10.0%
600,000
9.0%
200,000
400,000
0 -200,000
8.0%
-400,000 7.0%
-600,000 Q1 15
Q2 15
Q3 15
Absorption
Q4 15
Q1 16
Q2 16
Q3 16
Q4 16
Deliveries
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Vacancy Source: CoStar 2018 1Q Industrial Report
LARGE EXISTING VACANCIES • 600 Fallbrook Drive – 500,400 SF • 971 N Sam Houston Parkway East – 251,220 SF • 431 E Airtex Drive - 167,238 SF • 18727 Kenswick Drive – 150,000 SF • 1545 Diplomatic Plaza Drive – 125,120 SF
Property Photo: 971 N Sam Houston Parkway East, CoStar
SUBMARKET INTELLIGENCE NEAR EAST HOUSTON
HLC OUTLOOK 47,252,223 SF
HOUSTON SHIP CHANNEL
Houston’s Near East Submarket contains approximately 10% of the metro’s industrial inventory, with a majority of the product constructed 20+ years ago. There has been relatively little new construction in this submarket over the last 20 years as the typical user in this submarket has historically been more price-sensitive relative to other parts of Houston; for this reason, justifying new-construction rents has been a challenge. This submarket borders downtown Houston and runs east, ending just outside of Loop 610. It enjoys excellent freeway access via I-10, Highway 59, and Loop 610. The Near East submarket has the most active rail infrastructure in Houston, serving the many plants and refineries along the Gulf Coast.
Historically a very stable submarket from an occupancy standpoint, 2017 was a challenge and saw significant negative absorption. This was driven by a downsizing across the pipe and fitting industry and several other large users shuttering their Houston operations or relocating to self-owned real estate outside of the submarket. Meanwhile, there was little in the way of significant positive absorption. Through the first three months of 2018, activity has increased significantly over 2017 levels, with several larger leases signed to date and more deals pending.
PASADENA
Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
-147,282
-53,789
10,497
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
3.5%
3.2%
4.0%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
214,925
371,908
994,202
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
–
–
–
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
–
–
–
VITAL STATS
5.0%
LARGE EXISTING VACANCIES • 3401 Navigation Boulevard – 238,464 SF • 221 Portwall Street – 162,178 SF • 2015 Turning Basin Drive – 142,791 SF • 4849 Homestead Road – 102,680 SF • 8000 Market Street – 93,600 SF
500,000 400,000
4.0%
300,000
3.0%
100,000
200,000
0 2.0%
-100,000
1.0%
-300,000
0.0%
-500,000
-200,000
-400,000
Q1 15
Q2 15
Q3 15
Absorption
Q4 15
Q1 16
Q2 16
Q3 16
Q4 16
Deliveries
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Vacancy Source: CoStar 2018 1Q Industrial Report
Property Photo: 4849 Homestead Road, HLC
SUBMARKET INTELLIGENCE PORT AREA
MONT BELVIEU
HLC OUTLOOK
BAY TOWN
HOUSTON
SHIP CHANNEL
51,852,731 SF
The Port submarket has recently emerged as one of the strongest submarkets in the Houston market with a surge in speculative development and strong absorption. This can be attributed to several factors, including its strategic location near the Port of Houston, proximity to Gulf Coast plants and refineries, and the extensive multi-modal transportation infrastructure in the area, including an extensive rail network. In addition to the spec development, there are a significant amount of proposed build-to-suit developments currently in the submarket.
PASADENA LA PORTE HOBBY AIRPORT
ELLINGTON AIRPORT
Absorption
TRINITY BAY
vs. Prev. Qtr
752,412
1,146,079
2,176,279
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
3.1%
3.7%
4.2%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
526,215
1,265,726
861,786
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
3,326,490
2,738,734
2,206,558
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
460,402
NEW DEVELOPMENTS • Port 10 Logistics Center Phase I – two cross-dock
vs. 12 Mths Ago
500,000
buildings – 485,000 and 295,000 SF respectively
LARGE EXISTING VACANCIES • 10025 Porter Road (Independence Logistics Park) – 94,556 SF
• 1321 W Pasadena Freeway (Carson Commerce Center 5) – 78,490 SF
2,526,498
• 4300 Malone Drive (Bayport North Industrial Park) – 57,359 SF
• 12552 Highway 3 – 50,300 SF
VITAL STATS
7.0%
3,000,000
6.0%
2,500,000
5.0%
2,000,000
4.0%
1,500,000
3.0%
1,000,000
2.0%
500,000
1.0%
0
-500,000
0.0% Q3 15
Q4 15
Q1 16
Absorption
Q2 16
Q3 16
Q4 16
Q1 17
Deliveries
Q2 17
Q3 17
Q4 17
Q1 18
Vacancy Source: CoStar 2018 1Q Industrial Report
Property Photo: 4300 Malone Drive, CoStar
SUBMARKET INTELLIGENCE SOUTH HOUSTON
HOUSTON
SHIP CHANNEL
MEDICAL CENTER
PASADENA
38,410,327 SF
Absorption
vs. Prev. Qtr
LARGE EXISTING VACANCIES • 3203 S Sam Houston Parkway E (South Point
vs. 12 Mths Ago
-13,938
-59,905
-122,072
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
3.4%
3.3%
2.7%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
205,472
70,936
164,655
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
71,593
98,113
26,520
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
26,520
0
64,800
VITAL STATS
7.0%
Business Park Building 2) – 108,000 SF • 9380 Kirby Drive – 65,000 SF • 3440 Sam Houston Parkway E (288 Business Center) – 50,700 SF
3,000,000
6.0%
2,500,000
5.0%
2,000,000
4.0%
1,500,000
3.0%
1,000,000
2.0%
500,000
1.0%
0
0.0%
-500,000 Q3 15
Q4 15
Q1 16
Absorption
Q2 16
Q3 16
Q4 16
Q1 17
Deliveries
Q2 17
Q3 17
HLC OUTLOOK The South submarket is Houston’s smallest. Over the last decade, construction has been sparse, although occupancy rate has stayed well above 95% for much of that time period. In a typical quarter, this submarket will see absorption at or just below zero, and Q1 2018 was no different.
HOBBY AIRPORT
Q4 17
Q1 18
Vacancy Source: CoStar 2018 1Q Industrial Report
Property Photo: 3440 Sam Houston Parkway E, CoStar
SUBMARKET INTELLIGENCE SOUTHWEST HOUSTON
KATY
45,032,563 SF
HOUSTON
HLC OUTLOOK
GALLERIA
MEDICAL CENTER
HOBBY AIRPORT SUGAR LAND
The Southwest industrial submarket has recently experienced an uptick in activity, and investors are bullish on this submarket heading into Q2 2018 and beyond. The business-friendly local governments in Fort Bend County and available Triple Freeport Tax Exemption are just two of the many reasons industrial developers and investors are intrigued by this submarket. The labor demographics in this part of the Houston market are excellent and the rapid population growth will continue to be a driver for absorption and new construction.
RICHMOND MISSOURI CITY
PEARLAND
Absorption
vs. Prev. Qtr
-140,650
43,045
57,713
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
6.6%
6.3%
6.7%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
274,507
945,118
526,315
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
550,000
550,000
112,500
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
0
0
totaling 674,418 SF – Hines is the seller • Stafford Grove Industrial Park – three buildings totaling 352,000 SF – Crow Holdings is the seller
NEW DEVELOPMENTS • 636 Highway 90 (Best Buy Distribution Center)
135,400
VITAL STATS
7.0%
DEALS ON THE MARKET • Beltway Southwest Business Park – four buildings
vs. 12 Mths Ago
1,200,000 1,000,000
6.5%
800,000 6.0%
600,000
5.5%
400,000 200,000
5.0%
0 4.5%
-200,000
4.0%
-400,000 Q1 15
Q2 15
Q3 15
Absorption
Q4 15
Q1 16
Q2 16
Q3 16
Q4 16
Deliveries
Q1 17
Q2 17
Q3 17
Q4 17
Q1 18
Vacancy Source: CoStar 2018 1Q Industrial Report
LARGE EXISTING VACANCIES • 10570 Bissonnet Street – 126,000 SF • 12315 Parc Crest Drive – 66,626 SF
Property Photo: Stafford Grove Industrial Park, CoStar
DALLAS
5055 Keller Springs Road Suite 300 Addison, Texas 75001 T 972.241.8300 F 972.241.7955
FORT WORTH
300 Throckmorton Street Suite 550 Fort Worth, Texas 76102 T 817.710.1110 F 817.810.9017
HOUSTON
11757 Katy Freeway Suite 250 Houston, Texas 77079 T 713.850.8500 F 713.850.8550