Market Brief...
Houston
INDUSTRIAL
3Q2020 Property Pictured Above: Interwood Distribution Center | 14710 & 14720 John F. Kennedy Boulevaard, Houston, Texas 77032
1
HOUSTON INDUSTRIAL MARKET BRIEF 3Q 2020
WHY HLC’S HOUSTON INDUSTRIAL REPORT IS DIFFERENT At HLC, we believe that customer service and professional expertise are two of the cornerstones to delivering great service to our clients in the real estate industry. In real estate, professional expertise is achieved largely by having excellent market knowledge. This month, you will receive several reports focusing on Houston’s industrial real estate. These reports will be filled with data and statistics but will these numbers be the right numbers? Our market report stands apart because we track and analyze data unlike most others. Our report contains only statistics for institutional-grade distribution and flex buildings. Additionally, our report only tracks concrete tilt-wall and masonry buildings which means all metal construction has been removed from our data set. While grade-level, metal, and manufacturing buildings play an important role in Houston’s industrial market, we believe they should be tracked separately from typical institutional-grade distribution and flex warehouses. Another significant feature that sets our report apart is our submarket boundaries. We noticed that most of the standard submarket definitions used in CoStar and other market reports are not consistent with how the submarkets actually behave. For example, in East Houston, Interstate 10 serves as the boundary between the NE and SE submarkets in most other reports, but there are dozens of buildings that directly compete on both sides of the freeway. We believe submarkets should show a complete picture of the surrounding competitive set, so we created our own based not on arbitrary physical boundaries like roads or neighborhoods, but on which buildings actually compete against each other within a specific region of the Houston market. We hope you enjoy reading our report and find the information useful. If you have any questions, please don’t hesitate to call or email a member of our team.
Sincerely,
The HLC Houston Industrial Team
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HOUSTON INDUSTRIAL MARKET BRIEF 3Q 2020
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
4
B. C. D. E. F. G. H.
Northwest Houston North Houston Far North Near East Houston Port Area South Houston Southwest Houston
HOUSTON HLC SUBMARKET COVERAGE
HLC tracks statistics, facts, and figures for institutional-grade industrial and flex warehouses within the submarkets detailed above.
5
HLC HOU
INDUSTRIAL TRENDS & TRANSACTIONS HLC OUTLOOK
INDUSTRIAL MARKET EXPERTS
Market-wide vacancy for distribution and flex product stood at 11.8% at the end of 3Q 2020. Net absorption in 3Q 2020 was 1,623,271 SF, bringing the YTD total for Houston to roughly 7.5M SF. 2020 will almost certainly be a record year for net absorption in the Houston market. However, with speculative construction also setting records over the last several quarters, the vacancy factor has continued to rise steadily. In addition to the historical levels of new construction, the COVID-19 pandemic, a lackluster oil and gas market, and the presidential election have all contributed to the headwinds the Houston industrial market has experienced as of late. Many companies have decided to pause or delay real estate decisions in 2020 meaning that less deals are getting done than otherwise would be. However, activity has remained strong market-wide mainly due to an uptick in e-commerce, consumer goods, and building products companies leasing space. We expect this trend to continue into 2021 and beyond. Another positive sign is the decrease in the amount of square footage under construction at the end of 3Q 2020. While the total number under construction has been more than 16M SF for six consecutive quarters, it dropped down to 12.4M SF in 3Q 2020. This is a result of a handful of projects being put on hold, as well as various sources of capital taking a wait-and-see approach in response to the large amount of already-delivered vacant product.
CRAIG BEAN
JOHN KRUSE
Senior Vice President Houston Industrial Leasing cbean@holtlunsford.com 713.602.3752
Senior Vice President Houston Industrial Leasing jkruse@holtlunsford.com 713.602.3756
TRENDS & TRANSACTIONS • The Southwest submarket saw vacancy increase markedly to 14.8% in 3Q 2020. This increase is due to the delivery of 1.6M SF of new product with only 29,654 SF of net absorption. • The Port submarket remained in double-digit vacancy territory for a second straight quarter mainly due to negative absorption. With more than 3M SF still under construction and a heavy reliance on the downstream petrochemical plants, the Port submarket will need to see a barrage of leasing activity in that industry to avoid vacancy climbing further. • The investment sales market saw a significant increase in activity during 3Q 2020 with several new deals hitting the market in an effort to complete transactions before the end of the year. Where pricing ends up on these sales will be a good barometer of where the market is currently, and we expect cap rates to remain low.
Absorption
KELLY LANDWERMEYER
CARTER HOLMES
Senior Vice President Houston Industrial Leasing klandwermeyer@holtlunsford.com 713.602.3762
Market Analyst Houston Industrial Leasing cholmes@holtlunsford.com 713.602.3751
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vs. Prev. Qtr
vs. 12 Mths Ago
1,623,271
3,595,719
1,428,145
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
11.8%
11.1%
9.0%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
4,174,868
4,445,218
6,593,658
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
13,385,527
16,504,936
18,066,866
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
4,095,924
6,090,995
3,794,146
HLC HOU FACTS & FIGURES
OVERALL HOU
13.0%
9,000,000
12.0%
8,000,000
11.0%
7,000,000 6,000,000
10.0%
5,000,000
9.0%
4,000,000 8.0%
3,000,000
7.0%
Market
Existing Inventory
Vacancy
2,000,000
6.0%
1,000,000
5.0%
# Bldgs.
Total RBA
Direct SF
Total SF
Vac. %
Far West
76
15,456,933
1,613,847
1,617,685
10.5%
Northwest
1,295
104,831,520
10,339,239
10,899,647
10.4%
North
531
48,792,127
7,880,340
7,940,531
16.3%
Far North
30
3,977,694
144,670
144,670
3.6%
Near East
319
29,495,256
2,496,399
2,532,657
8.6%
Port
225
48,421,486
6,129,512
6,359,612
13.1%
South
328
22,891,491
1,811,868
1,856,868
8.1%
Southwest
288
31,012,181
4,566,511
4,577,558
14.8%
3,092
304,878,688
34,982,386
35,929,228
11.8%
0
4.0%
(1,000,000) 3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
1Q 19
Absorption
2Q 19
3Q 19
4Q 19
1Q 20
2Q 20
Deliveries
3Q 20
Vacancy
VACANCY - OVERALL HOU 14.0% 11.8%
10.0% 8.0%
6.8%
6.0%
6.4%
Totals
12.0%
11.5%
4.0% 2.0% 0.3%
0.3% 0.0%
3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
1Q 19
Direct
2Q 19
3Q 19
4Q 19
1Q 20
2Q 20
Sublet
3Q 20
Total
ABSORPTION - OVERALL HOU 8,000,000 7,000,000 6,000,000 5,000,000
YTD Net Absorption
YTD Deliveries
Under Construction SF
YTD Leasing Activity
Far West
660,860
1,786,450
3,998,687
1,117,031
Northwest
1,793,348
4,051,246
1,451,768
4,612,542
North
1,057,991
3,581,889
2,307,179
2,227,217
Far North
909,870
860,000
1,249,335
170,770
Near East
(168,440)
176,201
0
2,551,280
Port
1,210,661
3,982,415
2,524,967
1,627,062
25,000,000
South
423,991
240,504
0
856,516
20,000,000
Southwest
1,694,050
3,780,070
1,853,591
640,620
15,000,000
Totals
7,582,331
18,458,775
13,385,527
13,803,038
10,000,000
Market
4,000,000 3,000,000 2,000,000 1,000,000 0 (1,000,000) 3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
Total Net
4Q 19
1Q 20
2Q 20
3Q 20
Leasing Activity
CONSTRUCTION - OVERALL HOU
5,000,000
Source: CoStar
0 3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
1Q 19
Delivered Inventory
2Q 19
3Q 19
4Q 19
1Q 20
2Q 20
3Q 20
Under Construction
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SUBMARKET INTELLIGENCE FAR WEST
VITAL STATS 14.0%
1,600,000
BROOKSHIRE
KATY
1,400,000
12.0%
15,456,933 SF
1,200,000 10.0% 1,000,000 8.0%
800,000
6.0%
600,000 400,000
4.0% 200,000 2.0%
0
0.0%
(200,000) 3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
1Q 19
Absorption
Absorption
2Q 19
3Q 19
4Q 19
1Q 20
2Q 20
Deliveries
vs. Prev. Qtr
3Q 20
Vacancy
vs. 12 Mths Ago
545,910
15,372
33,382
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
10.5%
11.1%
5.9%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
45,323
149,881
554,594
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
3,998,687
5,572,257
1,082,550
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
498,700
205,200
Source: CoStar
HLC OUTLOOK
The Far West submarket follows along Interstate 10, stretches from Highway 6 out past Brookshire, and up and down the newly developed Grand Parkway. The submarket benefits from rapid population growth in West Houston, Katy, and the surrounding communities. Additionally, the submarket’s location along Interstate 10, and proximity to San Antonio and Austin, make it an attractive location for new regional e-commerce distribution centers. Prominent tenants and users in this submarket include Medline, Goya Foods, Rooms-to-Go, Amazon, Costco, Academy Sports + Outdoors, and Igloo. Vacancy decreased modestly to 10.5% in 3Q 2020 from 11.1% in 2Q 2020. The Far West submarket experienced a positive 545,910 SF of absorption during 3Q 2020 with YTD total being a positive 660,860 SF. The new supply within the submarket continues to increase with 498,700 SF of deliveries during 3Q 2020 and a 1,786,450 SF YTD total. We will need even stronger absorption in the coming quarters to prevent vacancy from increasing in future quarters. The 3,998,687 SF under construction at the end of 3Q 2020 in the Far West submarket is the most in the metro. It is important to note that several large build-to-suits or user-owned buildings account for a large portion of the under construction projects. It will be important to watch whether the larger tenants and users in this submarket decide on a design-build to accommodate future growth versus leasing additional space in speculative projects.
NEW DEVELOPMENTS • • • •
Ross Dress For Less – a 2.1M SF owner-user development Medline – a 1.3M SF owner-user development Empire West Business Park (Phase 1) – a 1,036,057 SF project with Stream Realty The Uplands Twinwood DC 1 – a 737,630 SF project with Clay Development
LARGE EXISTING VACANCIES • Clay 99 Building Five – 433,200 SF • Pederson Distribution Center – 205K SF • First Grand Parkway Building 1 – 173,045 SF
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SUGAR LAND
SUBMARKET INTELLIGENCE NORTHWEST HOUSTON
MAGNOLIA
THE WOODLANDS
PRAIRIE VIEW
TOMBALL
VITAL STATS
SPRING
GEORGE BUSH INTERCONTINENTAL AIRPORT
CYPRESS
14.0%
2,500,000
104,831,520
2,000,000
12.0%
1,500,000 BROOKSHIRE
KATY
HOUSTON
10.0%
1,000,000
GALLERIA
8.0%
HLC OUTLOOK The Northwest submarket is far and away the largest of the eight submarkets HLC tracks in Houston. Geographically located north of Interstate 10 along the Highway 290 and West Sam Houston Parkway corridors, the submarket has historically offered a “main and main” location for distribution tenants needing to be close to the regional population center. The vacancy rate in the Northwest submarket stood at 10.4% at the close of 3Q 2020 which is a slight decrease from 2Q 2020. YTD net absorption has been strong at nearly 1.8M SF total. Additionally, the submarket has seen more than 4M SF in YTD deliveries. Over half of those deliveries occurred in the 1Q 2020 which caused vacancy to jump into double-digits. With only 847,110 SF of new product under construction at the end of 3Q 2020, if absorption remains strong, we may see the vacancy dip back below 10% by the end of the year.
NEW DEVELOPMENTS • Sam Houston Distribution Center – an 833,720 SF development with Transwestern • 249 Business Park – an 806,360 SF development with Panattoni • Telge 290 Logistics Center – a 207,635 SF development with USAA, Archway, and Ridgeline • Windfern Northwest Distribution Center – a 179,200 SF development with PhelanBennett Development and GID
LARGE EXISTING VACANCIES • • • • • •
Sam Houston Distribution Center Building 2 – 368,467 SF 9800 Derrington Road – 368,467 SF 7301-7401 Security Way – 296,839 SF 4414 Hollister Road – 234,215 SF Telge 290 Logistics Center – 207,635 SF Sam Houston Distribution Center Building 1 – 200,200 SF
500,000 0
6.0%
-500,000 4.0%
-1,000,000
2.0%
-1,500,000 3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
Absorption
Absorption
1Q 19
2Q 19
Deliveries
vs. Prev. Qtr
3Q 19
4Q 19
1Q 20
2Q 20
3Q 20
Vacancy
vs. 12 Mths Ago
1,112,323
431,195
853,100
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
10.4%
10.6%
9.6%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
1,242,157
1,468,128
2,639,317
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,451,768
1,445,226
3,608,910
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,051,336
942,285
519,991 Source: CoStar
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SUBMARKET INTELLIGENCE NORTH HOUSTON
VITAL STATS
SPRING
18.0% 2,600,000
16.0%
48,792,127 SF
12.0%
1,600,000
10.0%
1,100,000
8.0%
600,000
6.0%
100,000
4.0%
(400,000) 3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
Absorption
Absorption
1Q 19
2Q 19
Deliveries
vs. Prev. Qtr
3Q 19
4Q 19
1Q 20
2Q 20
3Q 20
Vacancy
vs. 12 Mths Ago
26,251
325,463
307,548
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
16.3%
15.4%
10.3%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
915,595
516,394
722,098
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
2,307,179
3,778,667
5,227,530
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
449,286
1,921,180 Source: CoStar
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HUMBLE
2,100,000
14.0%
561,643
GEORGE BUSH INTERCONTINENTAL AIRPORT
LAKE HOUSTON
HLC OUTLOOK The North submarket provides a strategic location for companies looking for convenient access to George Bush Intercontinental Airport, as well as three of Houston’s most critical thoroughfares: Interstate 45, Sam Houston Parkway, and Highway 59/Interstate 69. This submarket has been one of the fastest growing submarkets in recent years. 3Q 2020 saw vacancy tick up to 16.3% in the North submarket as the historic levels of new construction continue to create challenges. The good news is only 561,643 SF of new product was delivered during the 3Q 2020 which means that for two quarters in a row we’ve seen well under 1M SF of building deliveries. YTD net absorption is 1,057,991 SF and YTD leasing activity is 2,227,217 SF. We will need to see some large blocks of vacant space leased before the vacancy number in the North submarket will return to single digits. Large speculative projects currently on the ground and vacant include USAA’s 685,400 SF Air 59 Logistics Center, Clay Development’s 524,160 SF Kennedy Greens Distribution Center, Davis Commercial Development’s two (2) building 515,780 SF Cypress Preserve Logistics Center, and IDI Logistics’ 351,400 SF North Houston Logistics Center Building G.
NEW DEVELOPMENTS • Interwood Distribution Center – a 341,692 SF project with Holt Lunsford Commercial Investments and GID • Parc 59 – a 279,500 SF project with Jackson Shaw and Thackery • Ella West Crossing – a 221,393 SF project with USAA and Seefried
LARGE EXISTING VACANCIES • • • •
Air 59 Logistics Center – 685,400 SF Kennedy Greens Distribution Center – 524,160 SF Cypress Preserve Logistics Center | Buildings 1 & 2 – 515,780 SF North Houston Logistics Center Building G – 351,400 SF
SUBMARKET INTELLIGENCE FAR NORTH
WILLIS LAKE CONROE
MONTGOMERY
CLEVELAND
CONROE
VITAL STATS
3,977,694 SF 8.0%
MAGNOLIA
THE WOODLANDS
PRAIRIE VIEW
900,000
NEW CANEY
7.0%
TOMBALL SPRING
DAYTON
HUMBLE
6.0%
700,000
5.0%
500,000
4.0%
HLC OUTLOOK
3.0%
The Far North submarket begins at the southern edge of Montgomery County and stretches north all the way past Conroe. Population growth and access to the DFW market are just a couple of attributes that make the Far North attractive to end users. This emerging submarket consists of a handful of large retail tenants recently electing to construct distribution centers here.
2.0%
Vacancy was 3.6% at the end of 3Q 2020 in the Far North submarket. With only 4M SF of institutional product, the Far North submarket does not get much attention. However, several large companies have recently either moved forward with, or are considering, constructing large distribution centers here. If this area of the Houston metro continues to pick up traction as a destination for big box distribution centers, we could see speculative construction gain traction here. As of now, almost all new activity has been of the owneruser or build-to-suit variety.
NEW DEVELOPMENTS • Five Below Distribution Center – an 860K SF owner-user development
300,000
100,000
-100,000
1.0% 0.0%
-300,000 3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
1Q 19
Absorption
Absorption
2Q 19
3Q 19
4Q 19
1Q 20
Deliveries
vs. Prev. Qtr
2Q 20
3Q 20
Vacancy
vs. 12 Mths Ago
30,000
866,278
4,915
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
3.6%
4.4%
5.7%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
2,160
161,475
2,850
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,249,335
145,210
-
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
860,000
Source: CoStar
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SUBMARKET INTELLIGENCE NEAR EAST HOUSTON
VITAL STATS
29,495,256 SF
HOUSTON
10.0%
500,000
8.0%
300,000 SHIP CHANNEL
6.0%
100,000
4.0%
(100,000)
2.0%
(300,000)
MEDICAL CENTER PASADENA
0.0%
(500,000) 3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
1Q 19
Absorption
Absorption
2Q 19
3Q 19
4Q 19
1Q 20
Deliveries
vs. Prev. Qtr
2Q 20
3Q 20
Vacancy
vs. 12 Mths Ago
(43,962)
(218,568)
27,147
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
8.6%
8.4%
8.0%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
571,015
965,491
798,081
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
702,295
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
526,094
The majority of Industrial product in the Near East submarket was constructed during the 1970s and 1980s. With limited new construction since that time, the average product age in this submarket is one of the oldest in Houston. Historically, this was the lowest priced submarket in Houston and attracted price-sensitive users. In particular, this submarket appealed to third-party logistics companies. Its widespread rail infrastructure and proximity to the Port of Houston made it the preferred submarket for plastic resin repackagers, though that has greatly diminished in recent years in favor of the Port submarket. This submarket has evolved significantly since 2015. In response to sub-3% vacancy rates for 2 straight years from 2014 to 2016, rents increased to historically high levels. While still a value option for tenants, the discount compared to other Houston submarkets and to new construction significantly diminished. This resulted in many tenants vacating the Near East submarket in favor of alternative submarkets, most notably the Port. Though rents for newer product in the Port submarket are higher, those costs are offset by lower drayage expenses, more efficient footprints, trailer storage, and in the case of resin repackagers, improved rail infrastructure. Since the beginning of 2016, the vacancy rate has increased from 1.8% to 8.6% at the end of 3Q 2020. After sharp vacancy increases from 2016 to 2018, increases in the vacancy rate flattened beginning in 2019 and have continued a slow drift upward. It is notable that there were two new speculative developments delivered over the past two years, which, when combined, resulted in a 2.5% increase in the vacancy rate. The amount of occupied space was virtually unchanged during 3Q 2020. Although there is no new supply in the pipeline, there could be modest challenges for the Near East in the short term. Specifically, there are a few larger anticipated move-outs that will put upward pressure on the vacancy rate unless there is offsetting absorption.
LARGE EXISTING VACANCIES
Source: CoStar
12
HLC OUTLOOK
• • • • •
8230 Stedman Street (Houston Tradeport) – 468,922 SF 8550A Market Street – 231,800 SF 8404 East Freeway (Near East Distribution Center) – 176,201 SF 8786 Wallisville Road – 137,368 SF 2425 Turning Basin – 127,046 SF
SUBMARKET INTELLIGENCE PORT AREA
HLC OUTLOOK The Port submarket is strategically located in close proximity to the Port of Houston’s container terminals, extensive network of refineries and downstream chemical plants, and a widespread multi-modal transportation infrastructure including rail. The submarket allows for quick access to both the Barbours Cut and Bayport container terminals where container shipments enter and exit the Houston market.
DAYTON
HUMBLE
VITAL STATS LAKE HOUSTON
48,421,486 SF
MONT BELVIEU
BAY TOWN
14.0%
3,000,000
12.0%
2,500,000
10.0%
2,000,000
8.0%
1,500,000
6.0%
1,000,000
4.0%
500,000
2.0%
0
SHIP CHANNEL
The Port submarket is relatively young compared to other submarkets with more than half of the existing inventory constructed in the last decade. Drivers for the submarket include third party logistics providers (plastic resin repackagers in particular), downstream energy service providers, and retail (ex. Walmart, Home Depot, IKEA).
PASADENA LA PORTE
0.0% TRINITY BAY
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
1Q 19
Absorption
2Q 19
Deliveries
3Q 19
4Q 19
1Q 20
2Q 20
3Q 20
Vacancy
LEAGUE CITY
As anticipated, the vacancy rate in the Port submarket continued to increase and ended 3Q 2020 over 13% as deliveries again outpaced absorption. Since the beginning of the year, just under 4M SF of product has been delivered. This is in line with the trailing three-year average for deliveries of 4.7M SF per year. Notably, over the past 12 quarters, absorption has lagged deliveries eight times. Looking forward, market conditions may stabilize but this will be dependent on absorption trends and construction starts. The new development pipeline has cooled slightly with only 3,163,727 SF under construction currently. However, by our count, there is an additional 4M SF of proposed projects on the drawing boards but not yet under construction.
NEW DEVELOPMENTS • Cedar Port Trade Center – a 1,021,440 SF development with Hunt Southwest • Monument Business Park – a 609,510 two (2) building project with Molto Properties
Absorption
LARGE EXISTING VACANCIES Bay Area Business Park Building 10 | 10629 Red Bluff – 784,000 SF Cedar Port Logistics | 4725 E Grand Parkway South – 644,000 SF Bayport South | 10591 Red Bluff Road – 642,994 SF 5335 Cedar Port Parkway – 352,559 SF
vs. Prev. Qtr
vs. 12 Mths Ago
(283,758)
546,054
269,564
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
13.1%
12.3%
8.3%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
455,355
582,562
865,589
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
2,524,967
1,387,338
4,308,424
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
141,265 • • • •
(500,000) 3Q 17
ELLINGTON AIRPORT
2,434,224
726,627 Source: CoStar
13
SUBMARKET INTELLIGENCE SOUTH HOUSTON
GALLERIA MEDICAL CENTER PASADENA
VITAL STATS
SOUTHWEST 31,012,181 SF
10.0%
HOBBY AIRPORT
500,000 400,000
8.0%
22,891,491 SF
300,000
PEARLAND
200,000 6.0%
100,000 0
4.0%
(100,000) (200,000)
2.0%
(300,000) (400,000)
0.0%
(500,000) 3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
Absorption
Absorption
1Q 19
2Q 19
3Q 19
4Q 19
1Q 20
Deliveries
vs. Prev. Qtr
2Q 20
3Q 20
Vacancy
vs. 12 Mths Ago
206,853
309,214
(376,114)
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
8.1%
8.0%
9.7%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
237,835
154,091
528,298
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
757,222
-
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
At the close of 3Q 2020, vacancy was 8.1% in the South submarket which was a modest increase from 8.0% at the end of 2Q 2020. YTD absorption through 3Q 2020 was a positive 423,991 SF which is noteworthy considering the South submarket has only posted positive quarterly absorption on four separate occasions in the last three years. The South submarket continues to feel the effects of the negative 1,021,837 SF of absorption that occurred during the 2018 and 2019 calendar years due to several key tenants vacating the submarket, such as Grocers Supply which relocated to North Houston. There have been 240,504 SF of deliveries YTD in the South with the only significant completion being the 200,400 SF Amazon build-to-suit at National Property Holdings’ South Point Business Park. Several upcoming new developments ,such as IDV’s South Belt Central and Summit Realty Group’s Corporate Center Fannin, have reportedly been put on hold until 2021.
• South Belt Central | Phase I – a 436,569 SF development with IDV (On Hold) • South Point Business Park | Phase II | Amazon BTS – a +/- 200,400 SF development with National Property Holdings • Corporate Center Fannin – a 151,342 SF development with Summit Realty Group (On Hold)
LARGE EXISTING VACANCIES Source: CoStar
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The South submarket benefits from its proximity to Houston’s Medical Center just south of downtown, and is defined by a high volume of flex buildings designed to service the wide range of health care providers within the Medical Center. Geographically, the submarket stretches from just north of Loop 610 South past Beltway 8. Large portions of this area have not yet been developed making this submarket potentially the least land-constrained. However, due to the lack of population growth relative to the northern and western submarkets, there has not been a strong demand for new development in this area.
NEW DEVELOPMENTS
240,504
HLC OUTLOOK
• 5055 S Loop Freeway E – 133,077 SF • 3110 Corder Street – 109,500 SF • 5901 Griggs Road – 101,707 SF
SUBMARKET INTELLIGENCE SOUTHWEST HOUSTON
BROOKSHIRE
KATY
GALLERIA
VITAL STATS
SUGAR LAND
16.0%
31,012,181 SF
1,800,000
14.0%
RICHMOND MISSOURI CITY
12.0% 1,300,000
HLC OUTLOOK
10.0%
The Southwest submarket encompasses most of Southwest Houston outside of Loop 610, stretching from the Westchase area to the north, all the way south to the outlying suburbs of Fort Bend County. The submarket has seen steady growth in new construction over the last several years. The business-friendly local governments in Fort Bend County and available Triple Freeport Tax Exemption are two big reasons why we have seen so much activity in the Southwest submarket. Furthermore, the labor demographics in the area are excellent and rapid population growth, which has been the norm for over a decade in Fort Bend County, is expected to continue in this region. Vacancy was 14.8% at the close of 3Q 2020 which is an increase from the 10.2% vacancy rate at the end of 2Q 2020. The increase in vacancy is largely due to the 1,602,476 SF of new deliveries that occured in 3Q 2020. Positive absorption of 1,694,050 SF YTD through 3Q 2020 has not been enough to keep up with the increasing supply. The 1,853,591 SF under construction in the submarket at the close of 3Q 2020 is a decrease in comparison to both 1Q 2020 and 2Q 2020.The decreasing number of new buildings under construction should help both the vacancy and absorption numbers in the upcoming quarters.
NEW DEVELOPMENTS • Boulevard Oaks Business Park | Phase II – a 986,480 SF development with Hines and TA Realty • Waypoint Business Park – a 708,944 SF development with 4M Investments and Clarion • City Park Logistics Center – a 438,202 SF development with Logistics Property Company • Stafford Crossing – a 334,200 SF development with Transwestern and AEW • Sugar Land Crossroads – a 326,807 SF development with Transwestern and Diamond Realty Investments
LARGE EXISTING VACANCIES
• Boulevard Oaks Business Park Building 8 – 532,440 SF • Southwest Commerce Center | 611 S Cravens Road – 477,355 SF • Waypoint Business Park Building 1 | 411 Cravens Road – 290,373 SF • 1111-1113 Gillingham Lane – 266,663 SF
8.0%
800,000
6.0% 4.0%
300,000
2.0% 0.0%
(200,000) 3Q 17
4Q 17
1Q 18
2Q 18
3Q 18
4Q 18
1Q 19
Absorption
Absorption
2Q 19
Deliveries
vs. Prev. Qtr
3Q 19
4Q 19
1Q 20
2Q 20
3Q 20
Vacancy
vs. 12 Mths Ago
29,654
1,320,711
308,603
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
14.8%
10.2%
8.1%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
705,428
447,196
482,831
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,853,591
2,114,586
3,137,157
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,602,476
1,200,000
626,348 Source: CoStar
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DALLAS
5950 Berkshire Lane Suite 900 Dallas, Texas 75225 T 972.241.8300 F 972.241.7955
FORT WORTH
1200 Summit Avenue Suite 300 Fort Worth, Texas 76102 T 817.710.1110 F 817.810.9017
www.holtlunsford.com
HOUSTON
11451 Katy Freeway Suite 300 Houston, Texas 77079 T 713.850.8500 F 713.850.8550
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