Market Brief...
Houston
INDUSTRIAL
4Q2020 Property Pictured Above: Ella West Crossing | 606 West Road, Houston, Texas 77038
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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.
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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
4
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
5
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
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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
31
4,122,904
35,238
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%
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
0
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
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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
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
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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
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
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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
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 • • • •
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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
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
11
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
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
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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
0
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
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%
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
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
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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
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
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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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