4Q 2020 Houston Industrial Market Brief by Holt Lunsford Commercial

Market Brief...

Houston

INDUSTRIAL

4Q2020 Property Pictured Above: Ella West Crossing | 606 West Road, Houston, Texas 77038

HOUSTON INDUSTRIAL MARKET BRIEF 4Q 2020

WHY HLC’S HOUSTON INDUSTRIAL REPORT IS DIFFERENT At HLC, we believe that customer service and market knowledge are two of the cornerstones to delivering great service to our clients in the real estate industry, and one way we strive to provide both is through our quarterly market updates. Our Houston industrial market report stands apart because we track and analyze data unlike most others. For example, our report contains only statistics for institutional-grade distribution and flex buildings. While we recognize that specialized 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 Interstate. 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.

HOUSTON INDUSTRIAL MARKET BRIEF 4Q 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

B. C. D. E. F. G. H.

Northwest Houston North Houston Far North Near East Houston Port Area South Houston Southwest Houston

HOUSTON

15,456,933 3,977,694

CONROE

HLC SUBMARKET COVERAGE

MAGNOLIA

THE WOODLANDS

NEW CANEY

FAR NORTH 4,122,904 SF

PRAIRIE VIEW

TOMBALL SPRING

DAYTON

NORTH 51,124,593 SF

GEORGE BUSH INTERCONTINENTAL AIRPORT

CYPRESS

HUMBLE

NORTHWEST 105,501,066 SF

LAKE HOUSTON

PORT AREA 51,219,020 SF

MONT BELVIEU

BROOKSHIRE

NEAR EAST 24,962,955 SF

KATY

HOUSTON BAY TOWN

FAR WEST 22,512,989 SF

SHIP CHANNEL

GALLERIA

MEDICAL CENTER

SOUTHWEST 31,407,460 SF SUGAR LAND

HLC tracks statistics, facts, and figures for institutional-grade industrial and flex warehouses within the submarkets detailed above. RICHMOND

SOUTH 23,210,438 SF

PASADENA LA PORTE HOBBY AIRPORT

ELLINGTON AIRPORT TRINITY BAY

HLC HOU

INDUSTRIAL TRENDS & TRANSACTIONS HLC OUTLOOK

INDUSTRIAL MARKET EXPERTS

Market-wide vacancy for distribution and flex product ticked up slightly from 11.8% at the end of 3Q 2020, to 12.3% at the close of the year. Net absorption in 4Q 2020 was 5,903,543 SF bringing the calendar year total for the Houston market to more than 13.5M SF which is a record. The historically strong absorption numbers for 2020 were driven largely by e-commerce and consumer goods companies such as Amazon, Home Depot, Ross Dress for Less, Five Below, Dollar Tree, and many others signing large leases and/or executing large design-build projects market-wide, and are certainly a positive sign as we look forward to 2021. Houston also saw a slew of third-party logistics and last-mile delivery companies lease space to serve the growing demand from consumers for online ordering of goods and swift delivery of those goods. If record absorption was the top storyline in Houston in 2020, the peak and subsequent deceleration of the speculative construction pipeline had to have been the second most important trend to follow. At the close of 2019, HLC was tracking 17.7M SF of new construction projects in Houston. Comparatively, at the close of 2020 that number had reduced to only 9.7M SF. As a result, we expect vacancy to begin to decrease throughout 2021 market-wide from its current 12.3%.

TRENDS & TRANSACTIONS 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

• The Southwest submarket saw vacancy increase to double-digit territory for much of 2020. This increase was due to the delivery of almost 4M SF of new product while absorption lagged behind significantly. • The Northwest submarket continues to draw significant interest from both users and investors. Continued population growth in the outlying northwest suburbs has continued to push new development out further along the Highway 290 corridor with several new projects being announced during the second half of 2020. • The Port submarket continues to see a significant amount of construction including the first 1M SF speculative building to be built anywhere in Houston. The project, named Cedar Port Trade Center which is being developed by Hunt Southwest, is scheduled to be complete in 2Q 2021 and is located in Baytown’s Cedar Port Industrial Park.

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

vs. Prev. Qtr

vs. 12 Mths Ago

5,903,543

1,966,682

3,325,890

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

12.3%

11.8%

8.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

7,606,887

5,133,094

4,900,224

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

9,179,669

13,385,527

17,725,209

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

8,635,980

4,095,924

2,799,195

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

Total RBA

Direct SF

Total SF

Vac. %

Far West

148

22,512,989

1,952,269

1,961,585

8.7%

Northwest

1,329

105,501,066

10,936,183

11,434,587

10.8%

598

51,124,593

9,670,204

9,702,395

19.0%

Far North

4,122,904

35,238

0.9%

Near East

235

24,962,955

2,257,238

2,287,006

9.2%

Port

272

51,219,020

7,139,187

7,242,971

14.1%

South

343

23,210,438

1,814,280

1,861,275

8.0%

Southwest

290

31,407,460

4,140,761

4,161,408

13.2%

3,246

314,061,425

37,945,360

38,686,465

12.3%

Totals

1,000,000

5.0%

# Bldgs.

North

2,000,000

6.0%

4.0%

(1,000,000) 4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Absorption

3Q 19

4Q 19

1Q 20

2Q 20

3Q 20

Deliveries

4Q 20

Vacancy

VACANCY - OVERALL HOU 14.0% 12.3% 12.1%

12.0% 10.0% 8.0%

6.3% 6.0%

6.0%

4.0% 2.0% 0.4%

0.2% 0.0%

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Direct

3Q 19

4Q 19

1Q 20

2Q 20

3Q 20

Sublet

4Q 20

Total

ABSORPTION - OVERALL HOU 9,000,000 8,000,000 7,000,000 6,000,000

YTD Net Absorption

YTD Deliveries

Under Construction SF

YTD Leasing Activity

Far West

4,945,833

6,339,881

2,271,918

1,189,938

Northwest

1,473,892

4,242,860

1,451,768

8,148,509

North

1,520,732

6,035,054

988,457

3,252,418

Far North

1,164,512

1,005,120

402,300

211,173

Near East

(18,227)

702,295

2,899,999

2,406,373

6,044,625

1,196,486

3,492,472

25,000,000

South

(16,980)

356,504

436,569

1,141,770

20,000,000

Southwest

2,120,730

3,780,070

2,432,171

3,269,834

15,000,000

13,596,865

27,980,315

9,179,669

23,606,113

10,000,000

Market

5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 (1,000,000)

Port

Totals

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

3Q 19

4Q 19

Total Net

1Q 20

2Q 20

3Q 20

4Q 20

Leasing Activity

CONSTRUCTION - OVERALL HOU

5,000,000

Source: CoStar

0 4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Delivered Inventory

3Q 19

4Q 19

1Q 20

2Q 20

3Q 20

4Q 20

Under Construction

SUBMARKET INTELLIGENCE FAR WEST

VITAL STATS 14.0%

4,400,000

BROOKSHIRE

KATY

3,900,000

12.0%

22,512,989 SF

3,400,000 10.0% 2,900,000 8.0%

2,400,000 1,900,000

6.0%

1,400,000

4.0%

900,000 2.0%

400,000

0.0%

(100,000) 4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Absorption

3Q 19

4Q 19

1Q 20

2Q 20

3Q 20

Deliveries

vs. Prev. Qtr

4Q 20

Vacancy

vs. 12 Mths Ago

4,104,166

619,800

908,360

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

8.7%

9.3%

3.5%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

71,901

39,950

273,916

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,271,918

5,447,758

5,373,120

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

4,386,701

561,280

749,644 Source: CoStar

HLC OUTLOOK

SUGAR LAND

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 to 8.7% in 4Q 2020 from 9.3% in 3Q 2020. The Far West submarket experienced a record positive 4,104,166 SF of absorption during 4Q 2020 due to substantial tenants such as Ross Dress for Less (2.16M SF), Medline (1.3M SF), and Amazon (805K SF) taking occupancy of completed design-builds. The new supply within the submarket continues to increase with 4,386,701 SF of deliveries during 4Q 2020 and 4,945,833 SF YTD total. The 1,559,288 SF under construction at the end of 4Q 2020 in the Far West submarket continues to be the most in the metro. However, this amount is significantly less than the 5,447,758 SF under construction at the end of 3Q 2020. 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 • 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 / Exeter • Jordan Ranch Distribution Center – a 498,231 SF project with Phelan Bennett / WPT REIT

LARGE EXISTING VACANCIES • Clay 99 Building Five – 433,200 SF • Pederson Distribution Center – 205K SF • First Grand Parkway Building 1 – 173,045 SF

SUBMARKET INTELLIGENCE NORTHWEST HOUSTON

MAGNOLIA

THE WOODLANDS

PRAIRIE VIEW

TOMBALL

VITAL STATS

SPRING

GEORGE BUSH INTERCONTINENTAL AIRPORT

CYPRESS

14.0%

2,500,000

105,501,066 SF

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 the largest of the eight submarkets HLC tracks in Houston with more than 105M SF of product. 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. New development has continued to creep further out along Highway 290 in recent years due to the lack of available land sites near Beltway 8. Most recently, Hines closed on a 108 acre land tract on Highway 290, two miles outside of the Grand Parkway, that will be able to accommodate over 1M SF of spec or BTS projects. The vacancy rate in the Northwest submarket stood at 10.8% at the close of 4Q 2020 which is a slight increase from the previous quarter’s 10.6% number. The submarket experienced negative absorption during 4Q 2020, however, we expect activity to increase in 2021 and for vacancy to dip below double digits as soon as the second quarter.

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 7301-7401 Security Way – 296,839 SF 4414 Hollister Road – 234,215 SF Telge 290 Logistics Center – 207,635 SF

500,000 0

6.0%

-500,000 4.0%

-1,000,000

2.0%

-1,500,000 4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

Absorption

2Q 19

3Q 19

Deliveries

vs. Prev. Qtr

4Q 19

1Q 20

2Q 20

3Q 20

4Q 20

Vacancy

vs. 12 Mths Ago

(122,895)

908,622

1,226,643

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

10.8%

10.6%

8.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

2,339,314

1,962,198

1,582,818

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,451,768

750,114

3,162,649

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

138,720

1,073,567

134,800 Source: CoStar

SUBMARKET INTELLIGENCE NORTH HOUSTON

VITAL STATS

SPRING

21.0% 19.0%

2,600,000

17.0%

2,100,000

GEORGE BUSH INTERCONTINENTAL AIRPORT

HUMBLE

51,124,593 SF

15.0%

LAKE HOUSTON

1,600,000

13.0% 1,100,000 11.0% 600,000

9.0%

100,000

7.0% 5.0%

(400,000) 4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

Absorption

2Q 19

3Q 19

Deliveries

vs. Prev. Qtr

4Q 19

1Q 20

2Q 20

3Q 20

4Q 20

Vacancy

vs. 12 Mths Ago

168,369

175,980

449,185

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

19.0%

16.3%

11.5%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

942,492

983,263

734,885

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

988,457

2,842,026

4,187,460

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,853,569

745,836

1,371,587 Source: CoStar

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. For instance, in the last two calendar years, the North submarket has seen over 11M SF of new industrial deliveries. That number equals more than one-fourth of the entire submarket’s square footage at the end of 2018. 4Q 2020 saw vacancy tick up to 19.0% in the North submarket as the historic levels of new construction continue to create challenges. Almost 2M SF of new speculative projects were delivered in 4Q 2020 and net absorption lagged behind at 163,369 SF. The submarket has seen robust activity over the last four to five months and with the new construction spigot somewhat turned off for now (only three buildings totaling 988,457 SF are under construction currently), we should see the vacancy rate start to decline precipitously over the first half of 2021. However, there are still several large blocks of vacant space on the ground and available including 685,400 SF at Air 59 Logistics Center and 524,160 SF at Kennedy Greens Distribution Center.

NEW DEVELOPMENTS • Park 505 at Hardy – a 534K SF project with IDV and Sealy • HITC Logistics Park – a 434,457 SF project with Logistics Property Company • Interwood Distribution Center – a 341,692 SF project with Holt Lunsford Commercial Investments and GID • Ella West Crossing – a 221,393 SF project with USAA and Seefried

LARGE EXISTING VACANCIES • • • •

Air 59 Logistics Center – 685,400 SF Generation Park (Lincoln Property Company) – 648,720 SF Kennedy Greens Distribution Center – 524,160 SF Cypress Preserve Logistics Center Building 2 – 258K SF

SUBMARKET INTELLIGENCE FAR NORTH

WILLIS LAKE CONROE

MONTGOMERY

CLEVELAND

CONROE

VITAL STATS

4,122,904 SF 8.0%

MAGNOLIA

THE WOODLANDS

900,000

NEW CANEY

7.0% PRAIRIE VIEW

TOMBALL SPRING

DAYTON

6.0%

700,000

5.0%

500,000

HUMBLE

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 some attributes that make the Far North submarket attractive to end users. Another important driver of activity here are local tax incentives offered by Montgomery County and municipalities in order to attract businesses. This emerging submarket is home to several large consumer goods tenants such as Five Below, Wal-Mart, CVS, and American Furniture Warehouse.

2.0%

Vacancy was only 0.9% at the end of 4Q 2020 in the Far North submarket. 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 owner-user or build-tosuit variety including two new projects that were announced during 4Q 2020, a 612K SF Lowe’s distribution center and a 1.5M SF Home Depot distribution center.

NEW DEVELOPMENTS • Lowe’s Distribution Center – a 1.5M SF BTS project with Clayco • Five Below Distribution Center – an 860K SF owner-user development • Home Depot Distribution Center – a 612K SF BTS project with Trammell Crow • Buske Distribution Center – a 145,210 SF owner-user development

300,000

100,000

-100,000

1.0% 0.0%

-300,000 4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

Absorption

2Q 19

3Q 19

4Q 19

1Q 20

2Q 20

Deliveries

vs. Prev. Qtr

3Q 20

4Q 20

Vacancy

vs. 12 Mths Ago

109,432

175,210

(17,100)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

0.9%

3.6%

6.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

40,403

2,160

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

402,300

145,210

860,000

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

145,210

Source: CoStar

SUBMARKET INTELLIGENCE NEAR EAST HOUSTON

VITAL STATS

24,962,955 SF

HOUSTON

10.0%

500,000

8.0%

300,000 SHIP CHANNEL

6.0%

MEDICAL CENTER

100,000

PASADENA

4.0%

(100,000)

2.0%

(300,000)

HLC OUTLOOK 0.0%

(500,000) 4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

Absorption

2Q 19

3Q 19

4Q 19

1Q 20

2Q 20

Deliveries

vs. Prev. Qtr

3Q 20

4Q 20

Vacancy

vs. 12 Mths Ago

35,816

58,135

146,538

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

9.2%

9.3%

8.4%

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

Source: CoStar

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, notably resin repackagers. Its widespread rail infrastructure and proximity to the Port of Houston made it the preferred submarket for port-sensitive users. That preference has diminished in recent years with the growth of the Port submarket. Market dynamics have evolved significantly since 2015. In response to sub-3% vacancy rates for two straight years from 2014 to 2016, rental rates 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 has resulted in many tenants vacating the Near East submarket in favor of alternative submarkets, most notably the Port. Though rental rates 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 2016, the vacancy rate has increased from very low single digits to 9% at the end of 4Q 2020. After sharp vacancy increases from 2016 through 2018, the vacancy rate flattened and has registered between 8.0-9.5% since. This was a slight improvement quarter over quarter. Although there is no new supply in the pipeline, there are continued challenges for the Near East in the short term. Specifically, there are anticipated move-outs that will put upward pressure on the vacancy rate without offsetting absorption.

LARGE EXISTING VACANCIES • • • • •

Houston Tradeport | 8230 Stedman Street – 468,922 SF 8550A Market Street – 231,800 SF Near East Distribution Center | 8404 East Freeway – 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

51,219,020 SF

MONT BELVIEU

3,000,000

14.0%

2,500,000

12.0%

2,000,000

10.0% 1,500,000 8.0% BAY TOWN

1,000,000 6.0%

SHIP CHANNEL

The Port submarket is relatively young compared to other submarkets with 93% of the institutional product constructed since the year 2000. The main 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).

16.0%

500,000

4.0%

PASADENA LA PORTE

2.0% 0.0%

(500,000) 4Q 17

ELLINGTON AIRPORT TRINITY BAY

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

2Q 19

Absorption

3Q 19

Deliveries

4Q 19

1Q 20

2Q 20

3Q 20

4Q 20

Vacancy

LEAGUE CITY

As anticipated, the vacancy rate in the Port submarket continued to increase in 4Q 2020 and finished the year at 14.1% versus 12.9% at the end of 3Q 2020 as deliveries continued to outpace absorption. During 2020, just over 6M SF were delivered as compared with the trailing three-year average of 4.6M SF. The amount of new construction in the pipeline is the lowest it has been in six years.

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

1,119,482

(219,868)

438,470

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

14.1%

12.9%

8.0%

Looking forward, the market should stabilize and begin to improve if current trends in new development, proposed projects and absorption remain stable.

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,865,410

455,355

536,319

NEW DEVELOPMENTS

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

• Cedar Port Trade Center – a 1,021,440 SF development with Hunt Southwest

LARGE EXISTING VACANCIES • Cedar Port Logistics | 4725 E Grand Parkway South – 644K SF • Bayport South | 10591 Red Bluff Road – 642,994 SF

1,196,486

3,192,266

4,587,255

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,995,780

207,655

724,058 Source: CoStar

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%

23,210,438 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) 4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

Absorption

2Q 19

3Q 19

Deliveries

vs. Prev. Qtr

4Q 19

1Q 20

2Q 20

3Q 20

4Q 20

Vacancy

vs. 12 Mths Ago

178,593

153,629

126,532

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

8.0%

8.3%

9.4%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

326,995

237,835

787,250

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

436,569

675,944

156,104

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

116,000

240,504

19,200 Source: CoStar

HLC OUTLOOK 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. At the close of 4Q 2020, vacancy was 8.0% in the South submarket which was a modest decrease from 8.3% at the end of 3Q 2020. Absorption during 4Q 2020 was a positive 178,593 SF which is noteworthy as the South submarket posted three consecutive quarters of positive absorption during 2020. This is in direct contrast to the only five quarters during the past three years where positive absorption has occurred in the South submarket. The South submarket continues to feel the effects of the negative 1,075,158 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 356,504 SF of deliveries YTD in the South submarket with the only significant completion being the 200,400 SF Amazon build-to-suit at National Property Holdings’ South Point Business Park which was delivered in September 2020. Several upcoming new developments are under construction, such as IDV’s South Belt Central, while Summit Realty Group’s Corporate Center Fannin has reportedly been put on hold.

NEW DEVELOPMENTS • South Belt Central | Phase I – a 436,569 SF development with IDV • 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 • 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%

31,407,460 SF

1,800,000

14.0%

RICHMOND MISSOURI CITY

12.0% 1,300,000

HLC OUTLOOK

10.0% 8.0%

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 13.2% at the close of 4Q 2020 which is an decrease from the 14.2% vacancy rate at the end of 3Q 2020. The high vacancy rate continues to be impacted by the 3,780,070 SF that was delivered in the Southwest submarket during 2020. Positive absorption of 2,120,730 SF during 2020 has not been enough to keep up with the increasing supply. The 2,432,171 SF under construction in the submarket at the close of 4Q 2020 remains unchanged from the previous quarter.

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 – 347,730 SF • 1111-1113 Gillingham Lane – 266,663 SF • Southwest Commerce Center I 611 S Cravens Road – 238,231 SF • Waypoint Business Park Building 1 | 411 Cravens Road – 222,031 SF

800,000

6.0% 4.0%

300,000

2.0% 0.0%

(200,000) 4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

1Q 19

Absorption

2Q 19

3Q 19

Deliveries

vs. Prev. Qtr

4Q 19

1Q 20

2Q 20

3Q 20

4Q 20

Vacancy

vs. 12 Mths Ago

310,580

95,174

47,262

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

13.2%

14.2%

9.1%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,651,653

901,318

468,428

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,432,171

1,263,500

2,557,814

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,602,476

358,201 Source: CoStar

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