Market Brief...
Houston
INDUSTRIAL
2Q2021 Property Pictured Above: Interwood Distribution Center | 14710 & 14720 John F. Kennedy Boulevard, Houston, Texas 77032
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HOUSTON INDUSTRIAL MARKET BRIEF 2Q 2021
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 2Q 2021
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 4,806,752 SF
PRAIRIE VIEW
TOMBALL SPRING
DAYTON
NORTH 53,037,908 SF CYPRESS
GEORGE BUSH INTERCONTINENTAL AIRPORT
HUMBLE
NORTHWEST 107,873,546 SF
LAKE HOUSTON
PORT AREA 52,888,594 SF
MONT BELVIEU
BROOKSHIRE
NEAR EAST 25,149,166 SF
KATY
HOUSTON BAY TOWN
FAR WEST 23,686,958 SF
SHIP CHANNEL
GALLERIA
MEDICAL CENTER
SOUTHWEST 48,457,629 SF SUGAR LAND
SOUTH 24,943,310 SF
PASADENA LA PORTE HOBBY AIRPORT
HLC tracks statistics, facts, and figures for institutional-grade industrial and flex warehouses within the submarkets detailed above. RICHMOND
5
ELLINGTON AIRPORT TRINITY BAY
HLC HOU
INDUSTRIAL TRENDS & TRANSACTIONS HLC OUTLOOK
INDUSTRIAL MARKET EXPERTS
Market-wide vacancy for distribution and flex product decreased 20 basis points to 11.8% as of the close of 2Q 2021. Net absorption came in at 3,379,117 SF and new deliveries totaled 2,587,704 SF. But by far the largest storyline during 2Q 2021 was the amount of leasing activity seen throughout the market. Almost 11M SF of industrial space was leased during 2Q 2021, setting a high water mark and beating every other quarter in the history of the Houston market. Much of this leasing activity was driven by several large deals that were inked, including but not limited to the below: • Ferguson has signed a 750,775 SF lease in 100 Empire Boulevard. • Living Spaces has signed a 685,400 SF lease in 18210 Eastex Freeway. • The Webstaurant Store has signed a 643,940 SF lease in 4725 E Grand Parkway S. • FedEx has signed a 534K SF lease in 505 Aldine Bender Road. • Goodman Manufacturing/Daikin has signed a 494,800 SF lease in Sam Houston Distribution Center, Building 2.
CRAIG BEAN
JOHN KRUSE
KELLY LANDWERMEYER
Managing Principal Houston Industrial Leasing cbean@holtlunsford.com 713.602.3752
Senior Vice President Houston Industrial Leasing jkruse@holtlunsford.com 713.602.3756
Senior Vice President Houston Industrial Leasing klandwermeyer@holtlunsford.com 713.602.3762
• Custom Goods has signed a 353,600 SF lease in 9431 Bay Area Boulevard and 347,860 SF in 10591 Red Bluff Road. • Hinton Lumber has signed a 240K SF sublease in 359 Old Underwood Road from Distribution NOW. • GCP Paper USA has signed a 235,845 SF lease in 14720 JFK Boulevard. Every one of the above-mentioned deals, except for the GCP Paper USA deal, are not set to commence until 3Q or 4Q 2021, meaning these figures won’t hit the absorption numbers until subsequent quarterly reports. 2020 saw record absorption for the Houston market, but there is now little to no doubt that 2021 will be ever greater. We expect vacancy to be back to single digits for the first time since 2019 within a matter of months.
TRENDS AND TRANSACTIONS
• Houston continues to see an uptick in new-to-market e-commerce, third-party logistics, and last-mile delivery requirements. This trend played a large part in the historic amount of leasing activity during 2Q 2021 and will continue to drive leasing activity and absorption for the foreseeable future. • The North submarket, which has been a laggard on the vacancy rate for the last two years, finally saw some positive news during 2Q 2021 with the signing of three deals in excess of 235K SF. Several other smaller deals were also inked in the North, bringing total leasing activity to 2,806,878 SF, the highest total ever for the submarket.
CARTER HOLMES
THOMAS PFEIFER
Market Analyst Houston Industrial Leasing cholmes@holtlunsford.com 713.602.3751
Market Analyst Houston Industrial Leasing tpfeifer@holtlunsford.com 713.602.3751
Absorption
vs. 12 Mths Ago
3,379,117
1,654,560
4,069,907
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
11.8%
12.0%
10.7%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
10,703,400
7,897,770
5,138,792
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
14,492,019
14,695,484
15,930,379
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
2,587,704
6
vs. Prev. Qtr
3,239,354
6,597,585
• New construction starts are expected to increase throughout the remainder of 2021 as more developers descend on Houston looking for well-located, developable sites. Confidence in speculative development is significantly higher than just two or three quarters ago due to the increased leasing activity and signs of rent growth in Class A product which had been stagnant for several years due to cap rate compression.
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
151
23,686,958
2,202,005
2,202,005
9.3%
Northwest
1,363
107,873,546
10,895,029
11,200,600
10.4%
North
566
53,037,908
10,010,227
10,030,043
18.9%
41
4,806,752
111,845
111,845
2.3%
Near East
242
25,149,166
2,607,523
2,677,575
10.6%
Port
293
52,888,594
6,953,102
7,388,495
14.0%
South
363
24,943,310
2,093,872
2,148,032
8.6%
Southwest
844
48,457,629
4,342,076
4,469,742
9.2%
3,863
340,843,863
39,215,679
40,228,337
11.8%
Totals
1,000,000
5.0%
# Bldgs.
Far North
2,000,000
6.0%
0
4.0%
(1,000,000) 2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
4Q 19
Absorption
1Q 20
2Q 20
3Q 20
4Q 20
1Q 21
Deliveries
2Q 21
Vacancy
VACANCY - OVERALL HOU 14.0% 11.8%
12.0%
11.5% 10.0% 8.0% 6.6% 6.0%
6.3%
4.0% 2.0% 0.3%
0.3% 0.0%
2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
4Q 19
Direct
1Q 20
2Q 20
3Q 20
4Q 20
1Q 21
Sublet
2Q 21
Total
ABSORPTION - OVERALL HOU 12,000,000
10,000,000
8,000,000
YTD Net Absorption
YTD Deliveries
Under Construction SF
YTD Leasing Activity
Far West
593,261
1,036,057
1,929,940
2,293,122
Northwest
188,833
645,114
1,226,961
5,453,427
North
750,539
988,707
1,210,123
4,115,096
Far North
461,218
402,300
2,331,000
267,374
Near East
435,911
0
0
793,657
Port
1,037,696
1,244,420
3,367,062
2,772,266
25,000,000
South
(72,348)
548,569
80,000
558,844
20,000,000
Southwest
1,655,677
1,018,668
4,346,933
2,347,384
15,000,000
Totals
5,050,787
5,883,835
14,492,019
18,601,170
Market
6,000,000
4,000,000
2,000,000
0 2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
4Q 19
1Q 20
2Q 20
Total Net
3Q 20
4Q 20
1Q 21
2Q 21
Leasing Activity
CONSTRUCTION - OVERALL HOU
10,000,000
5,000,000
Source: CoStar
0 2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
4Q 19
Delivered Inventory
1Q 20
2Q 20
3Q 20
4Q 20
1Q 21
2Q 21
Under Construction
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SUBMARKET INTELLIGENCE FAR WEST
VITAL STATS
BROOKSHIRE
14.0%
4,400,000
12.0%
3,900,000
KATY
23,686,958 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) 2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
4Q 19
Absorption
Absorption
1Q 20
2Q 20
3Q 20
4Q 20
Deliveries
vs. Prev. Qtr
1Q 21
2Q 21
Vacancy
vs. 12 Mths Ago
354,569
238,692
105,391
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
9.3%
10.3%
9.7%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
967,401
1,325,721
130,978
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,929,940
1,424,999
5,984,038
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
122,138
913,919
SUGAR LAND
The Far West submarket is located along Interstate 10 stretching west from Highway 6 past Brookshire encompassing areas in Harris, Fort Bend, and Waller counties. The submarket benefits from immediate access to Interstate 10, convenient city-wide connectivity via the Grand Parkway, continued population growth in West Houston and Katy, and the ability to serve multiple major cities in Texas such as Houston, San Antonio, and Austin from a single location. As Houston’s population continues to grow west, the submarket’s strategic location will make it an attractive option for new regional e-commerce distribution centers. Prominent tenants and users in this submarket include Medline, Goya Foods, Rooms-to-Go, Amazon, Costco, Bel Furniture, Academy Sports + Outdoors, and Igloo. Vacancy decreased to 9.1% in 2Q 2021 from 10.3% in 1Q 2020. The Far West submarket continued to experience positive absorption of 354,569 SF during 2Q 2021. The Far West submarket has seen strong leasing activity during both 1Q and 2Q 2021 with multiple deals being announced such as Rooms-To-Go leasing 498,231 SF in Jordan Ranch Distribution Center, RTIC leasing 433,200 SF at Clay 99, Ferguson leasing 750,775 SF in Empire West Building 3, Warefore Solutions leasing 163,144 SF in Empire West Building 1, and Winix America purchasing the 122,138 SF Empire West Building 2. The supply of new construction continues to increase with 122,138 SF of deliveries during 2Q 2021 and another 1,929,940 SF under construction.
NEW DEVELOPMENTS • Empire West Business Park | Phase 1 – a 1,036,057 SF development with Stream Realty • The Uplands Twinwood DC 1 – a 737,630 SF development with Clay Development/Exeter • Jordan Ranch Distribution Center – a 498,231 SF development with Phelan Bennett/WPT REIT • Stonelake West Ten – a 195,974 SF development with Stonelake Capital Partners • 7737 Cherokee Road – a 184,205 SF development with IDV/Alto Real Estate Funds • Point West Distribution Center – a 133,900 SF development with Realty 1 Partners
244,850 Source: CoStar
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HLC OUTLOOK
LARGE EXISTING VACANCIES • Pederson Distribution Center – 205,200 SF • Cane Island Business Center – 148,050 SF • First Grand Parkway | Building 1 – 144,045 SF
SUBMARKET INTELLIGENCE NORTHWEST HOUSTON
MAGNOLIA
THE WOODLANDS
PRAIRIE VIEW
TOMBALL
VITAL STATS
SPRING
GEORGE BUSH INTERCONTINENTAL AIRPORT
CYPRESS
107,873,546 SF
14.0%
2,500,000
13.0%
2,000,000
12.0% BROOKSHIRE
1,500,000
11.0%
KATY
HOUSTON
10.0%
1,000,000
GALLERIA
9.0%
500,000
8.0%
HLC OUTLOOK The Northwest submarket is the largest of the eight submarkets HLC tracks in Houston with more than 107M 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. The vacancy rate in the Northwest submarket stood at 10.4% at the close of 2Q 2021, a slight decrease from 10.7% in 1Q 2021. The submarket experienced leasing activity of 2,864,005 SF and positive net absorption of 770,620 SF. These numbers represent a good mix of new Class A product and older Class B product. Although the vacancy factor remains in double-digits, the leasing activity and general market activity present is leading to increased rents for both older and newer vintage buildings. Currently, there are 1,226,961 SF under construction. However, a majority of that number is build-to-suit projects, meaning we will continue to see the market tighten in the coming quarters.
NEW DEVELOPMENTS • Seton Lake Logistics Center – a 259,654 SF development with Trammell Crow • Amazon BTS at Republic Business Center – a 141,360 SF development with National Property Holdings • Home Depot BTS at Republic Business Center – a 657K SF development with National Property Holdings
LARGE EXISTING VACANCIES • • • • •
7301-7401 Security Way – 296,839 SF 3408 W 11th Street – 279,400 SF 4414 Hollister Road – 234,215 SF Telge 290 Logistics Center | 14803 Cypress N Houston Road – 207,635 SF Nexus Park NW | Building 2 | 10020 FM 1960 – 192,240 SF
7.0%
0
6.0%
-500,000
5.0% -1,000,000
4.0% 3.0%
-1,500,000 2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
Absorption
Absorption
4Q 19
1Q 20
Deliveries
vs. Prev. Qtr
2Q 20
3Q 20
4Q 20
1Q 21
2Q 21
Vacancy
vs. 12 Mths Ago
770,620
272,929
556,551
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
10.4%
10.7%
10.5%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
2,864,005
2,589,422
1,808,031
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,226,961
1,767,483
1,877,930
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
484,594
160,520
1,109,988 Source: CoStar
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SUBMARKET INTELLIGENCE NORTH HOUSTON
SPRING
VITAL STATS 21.0% 19.0%
2,600,000
17.0%
2,100,000
15.0%
GEORGE BUSH INTERCONTINENTAL AIRPORT
HUMBLE
53,037,908 SF
LAKE HOUSTON
1,600,000
13.0% 1,100,000 11.0% 600,000
9.0%
100,000
7.0% 5.0%
(400,000) 2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
Absorption
Absorption
4Q 19
1Q 20
Deliveries
vs. Prev. Qtr
2Q 20
3Q 20
4Q 20
1Q 21
2Q 21
Vacancy
vs. 12 Mths Ago
704,066
46,473
374,328
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
18.9%
20.2%
14.9%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
2,806,878
1,308,218
583,097
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,210,123
257,972
2,292,276
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
988,707
733,311
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 with a wave of new construction that started in 2019 contributing to over 12M SF of new deliveries in that timeframe. To put that number in perspective, the entirety of the North submarket’s existing square footage equaled 40,882,265 SF at the end of 2018. No new product was delivered in 2Q 2021 in the North submarket, which marks the first quarter to see no deliveries since 4Q 2018. Currently, we are tracking 1,210,123 SF of product under construction, of which 902,080 SF is speculative. The current reprieve in new construction will help alleviate the negative perception a high vacancy factor has caused this submarket since it climbed to double digits in late 2019. But what will be more helpful is the 2,806,878 SF of leasing activity seen in 2Q 2021 which will translate into significant amounts of positive absorption in 3Q and 4Q 2021. Currently, vacancy sits at 18.9% for the submarket, down from 20.2% at the close of 1Q 2021.
TOP LEASE TRANSACTIONS • • • • •
Living Spaces has signed a 685,400 SF lease in 18210 Eastex Freeway. FedEx has signed a 534K SF lease in 505 Aldine Bender Road. GCP Paper USA has signed a 235,845 SF lease in 14720 JFK Boulevard. Delandis has signed a 108K SF lease in 2032 Cypress Station Drive. ASD Lighting has signed a 96,140 SF lease in 15655 Milner Road.
NEW DEVELOPMENTS • 59 Logistics Center – a 509,600 SF project with Hunt Southwest • Fairway North Logistics Park | Building 2 – a 392,480 SF project with Lovett Industrial
Source: CoStar
LARGE EXISTING VACANCIES • Generation Park | 10100 W Lake Houston Parkway – 648,720 SF • Kennedy Greens Distribution Center | 13300 JFK Boulevard – 524,160 SF • Rankin 45 Distribution Center | 13800 North Freeway – 356,975 SF
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SUBMARKET INTELLIGENCE FAR NORTH
WILLIS LAKE CONROE
MONTGOMERY
CLEVELAND
CONROE
VITAL STATS
4,806,752 SF 12.0%
MAGNOLIA
THE WOODLANDS
PRAIRIE VIEW
900,000
NEW CANEY
10.0%
TOMBALL SPRING
700,000
DAYTON
8.0%
HUMBLE
500,000 6.0%
HLC OUTLOOK The Far North submarket begins at the southern edge of Montgomery County and stretches north all the way past Conroe. Population growth and easy access to the Dallas-Fort Worth market, as well as the rest of Texas, are just some attributes that make the Far North submarket attractive to many end users. Another important driver of activity here are local tax incentives offered by Montgomery County and its various municipalities in order to attract businesses. This emerging submarket is home to several large consumer goods tenants such as Five Below, Wal-Mart, CVS, Home Depot, American Furniture Warehouse, and a recently announced 1.5M SF Lowe’s distribution center. Vacancy sat at 2.3% at the end of 2Q 2021 in the Far North submarket. Currently, construction activity here is limited to three build-to-suit projects: a 1.5M SF building for Lowe’s in New Caney, a 612K SF Home Depot BTS in Conroe, and a 219K SF Amazon BTS by Lovett Industrial near the Grand Parkway. If this area in the Houston metro continues to pick up traction for big box distribution centers, we could see speculative construction gain traction here as well. As of now, almost all new activity has been of the owner-user or build-tosuit variety.
NEW DEVELOPMENTS • Lowe’s Distribution Center – a 1.5M SF BTS project with Clayco • Home Depot Distribution Center – a 612K SF BTS project with Trammell Crow • Amazon Last Mile at 99 North Logistics Park – a 219K SF project with Lovett Industrial
300,000
4.0%
100,000
2.0%
-100,000
0.0%
-300,000 2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
Absorption
Absorption
4Q 19
1Q 20
2Q 20
3Q 20
4Q 20
Deliveries
vs. Prev. Qtr
1Q 21
2Q 21
Vacancy
vs. 12 Mths Ago
45,776
415,442
866,278
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
2.3%
3.3%
7.4%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
242,600
24,774
161,475
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
2,331,000
2,823,262
402,300
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
402,300
860,000 Source: CoStar
11
SUBMARKET INTELLIGENCE NEAR EAST HOUSTON
VITAL STATS
600,000
25,149,166 SF
HOUSTON
12.0% 400,000 10.0% 200,000 8.0%
0
6.0%
(400,000)
2.0%
(600,000)
0.0%
(800,000) 2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
Absorption
Absorption
4Q 19
1Q 20
2Q 20
3Q 20
4Q 20
Deliveries
vs. Prev. Qtr
1Q 21
2Q 21
Vacancy
vs. 12 Mths Ago
340,010
(775,921)
(218,568)
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
10.6%
12.0%
9.5%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
289,936
503,721
1,073,376
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
16,759
-
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
HLC OUTLOOK The majority of industrial product in the Near East submarket was constructed in 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-centric users. That preference has diminished in recent years with the growth of the Port submarket. As anticipated, the vacancy rate stabilized in the short-term, improving a bit over 1Q 2021 to end 2Q 2021 at 10.4%. Aside from a built-to-suit at Houston Tradeport, there are no new significant developments under construction. However, there is a 3%+ spread between the current vacancy rate and the availability rate. Sublet space accounts for approx one quarter of the spread. The remainder is known move-outs or uncertain future tenancy. This will present a modest challenge between now and year-end for the overall vacancy rate. Despite some known losses of tenants headed to competing submarkets, there has been an uptick in activity from prospective tenants new to the Houston area. These prospects would provide much welcomed net absorption for the sub-market. A still elevated vacancy rate along with pricing on competing new construction, notably in the Port and North submarkets, will continue to exert pressure on market rents in the Near East in the short-term, particularly for transactions of 50K SF or greater.
TOP TRANSACTIONS No leases greater than 100K SF were completed in 2Q 2021.
-
Source: CoStar
12
PASADENA
(200,000)
4.0%
-
SHIP CHANNEL MEDICAL CENTER
LARGE EXISTING VACANCIES • • • • • •
Houston Tradeport | 8230 Stedman Street – 371,139 SF 8550A Market Street – 229,500 SF 8705 Citypark Loop – 191,614 SF 2425 Turning Basin – 127,046 SF 8530 Market Street – 124,375 SF 200 Portwall – 110K SF
SUBMARKET INTELLIGENCE PORT AREA
HLC OUTLOOK The Port submarket is strategically located near the Port of Houston’s container terminals, an 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 3,000,000
14.0%
The Port submarket is relatively young compared to other Houston 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). After experiencing a drop in the vacancy rate in 1Q 2021 after three straight quarters of increases, the vacancy rate increased to 14% to end 2Q 2021. However, the increased vacancy rate was solely attributable to the delivery of Hunt Southwest’s 1M SF spec project in Cedar Port. Leasing activity in the submarket remains healthy.
16.0%
LAKE HOUSTON
52,888,594 SF
MONT BELVIEU
2,500,000
12.0%
2,000,000
10.0% 1,500,000 8.0% BAY TOWN
1,000,000 6.0%
SHIP CHANNEL
500,000
4.0%
PASADENA LA PORTE
0
2.0% 0.0% TRINITY BAY
The construction pipeline remains robust on the surface with 3.3M SF under construction which represents an approximate 6% increase to the existing stock. However, it should be noted that much of the new construction is attributable to either user buildings (ex. Floor & Decor’s 1.5M SF) or specialty product (ex. two freezer buildings totalling 577K SF with over half of that spoken for). There is just under 250K SF of spec product under construction in buildings greater than 50K SF.
(500,000) 2Q 18
ELLINGTON AIRPORT
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
Absorption
4Q 19
1Q 20
Deliveries
2Q 20
3Q 20
4Q 20
1Q 21
2Q 21
Vacancy
LEAGUE CITY
Given the limited spec construction pipeline combined with current leasing activity, the Port submarket should see improving fundamentals for the next three to four quarters, though this could be lumpy as the submarket is not without challenges. In particular, there are some known or suspected move-outs which have not fully impacted the metrics to date, including Exel’s Baytown campus. While the export resin market, a big driver in the submarket, seems to have weathered the worst of the storm caused by COVID issues and the February Texas freeze, the industry has not returned to pre-pandemic volumes. Lastly, 9M SF of proposed projects remain on the drawing board. The new development pipeline could heat up quickly, but would not deliver until mid 2022 at the earliest.
TOP LEASE TRANSACTIONS • The Webstaurant Store has signed a 644K SF lease in 4725 E Grand Parkway South.
NEW DEVELOPMENTS • Cedar Port Trade Center – a 1,021,440 SF development with Hunt Southwest • Floor & Decor – a 1.5M SF development with Floor & Decor
LARGE EXISTING VACANCIES • Cedar Port Trade Center | 4633 Borusan Road – 1,021,440 SF • Cedar Port Building 4 | 5335 Cedar Port Parkway – 341,120 SF
Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
51,815
985,881
561,478
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
14.0%
12.4%
12.0%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
2,351,864
420,402
592,262
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
3,367,062
3,022,393
2,181,418
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,033,340
211,080
2,434,288 Source: CoStar
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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%
24,943,310 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) 2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
Absorption
Absorption
4Q 19
1Q 20
Deliveries
vs. Prev. Qtr
2Q 20
3Q 20
4Q 20
1Q 21
2Q 21
Vacancy
vs. 12 Mths Ago
(91,270)
18,922
393,014
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
8.6%
6.6%
6.5%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
332,013
226,831
154,003
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
619,297
789,073
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
112,000
3,100 Source: CoStar
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The South submarket benefits from its proximity to the world-renowned Texas Medical Center and growing population in the multiple master-planned communities in the Pearland area. Access to 610 Loop, Highway 288, and Highway 90 allow for easy access to the primary loops for traversing Houston from the South submarket. While the South submarket is one of the smaller submarkets of Houston, it plays a vital role in connecting larger submarkets such as Southwest and Near East/Port. Historically, the submarket has experienced slower leasing velocity and very little new development. Population is less dense within the South submarket when compared to the nearby Southwest submarket. Land values in close proximity to the Texas Medical Center and 610 Loop have increased rapidly in recent years making new industrial development effectively cost prohibitive. Industrial development opportunities still exist in the outer areas of the submarket near Beltway 8 and Highway 288. At the end of 2Q 2021, vacancy was 8.6% in the South submarket which was an increase from 6.6% at the end of 1Q 2021. Absorption during 2Q 2021 was a negative 91,270 SF. The submarket has seen negative absorption due tenant relocations to other submarkets and downsizing. The submarket experienced 436,569 SF of develiveres during 2Q 2021 due to the completion of IDV’s South Belt Center Phase 1 development. The recent delivery is significant since the South submarket has experienced very little new construction activity in the past several years in comparison to other submarkets.
NEW DEVELOPMENTS
80,000 436,569
HLC OUTLOOK
• 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
LARGE EXISTING VACANCIES • • • • • •
411 Brisbane – 345,100 SF South Bent Center | Building 1 – 305,016 SF South Belt Center | Building 2 – 131,553 SF 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%
48,457,629 SF RICHMOND MISSOURI CITY
1,800,000
14.0% 12.0%
1,300,000 10.0%
HLC OUTLOOK The Southwest submarket is located west of Loop 610 between Interstate 10 and just east of the Fort Bend Tollway encompassing areas in both Harris and Fort Bend Counties. The Southwest industrial submarket has seen significant growth in the last several years due to both speculative and build-to-suit construction. The submarket benefits from its proximity to the affluent population base of Sugar Land, coupled with its identical proximity as the Northwest submarket to the center of population for the city in West Houston. The submarket is well positioned to see an increase in demand in coming years from its direct proximity to the dense and continually growing population base in both West and Southwest Houston. Vacancy was 9.2% at the end of 2Q 2021 which is a decrease from the 10.2% vacancy rate in 1Q 2021. The vacancy rate continues to be impacted by the 835,632 SF that was delivered in 2Q 2021. The Southwest submarket experienced 1,203,531 SF of positive absorption during 2Q 2021 which is more than any other submarket during the quarter. The submarket currently has the most new construction activity in the metro area with 4,346,933 SF. It should be noted that Amazon currently has two build-to-suits underway (850K SF at 10507 Harlem Road and 1,081,292 SF at 2303 Hurricane Lane) in the Southwest submarket which accounts for approximately 44% of new construction activity.
NEW DEVELOPMENTS • • • • • • • • •
Boulevard Oaks Business Park | Phase II – a 986,480 SF development with Hines/TA Realty Waypoint Business Park – a 708,944 SF development with 4M Investments and Clarion Park 8Ninety | Phase V – a 676,860 SF development with Trammel Crow and ARTIS REIT Weatherford Farms Industrial Park – a 568,084 SF development with Crow Holdings Five Corners – a 541,946 SF development with Levey Group City Park Logistics Center – a 438,202 SF development with Logistics Property Company Stafford Crossing – a 334,200 SF development with Transwestern and AEW Nova Logistics Park – a 326,812 SF development with Lovett Commercial Sugar Land Crossroads – a 326,807 SF development with Transwestern and Diamond Realty Investments
LARGE EXISTING VACCANCIES • • • • •
1111-1113 Gillingham – 266,663 SF 611 S Cravens Road – 238,231 SF 9500 W Sam Houston Parkway South – 231,113 SF 411 Cravens Road – 222,031 SF City Park Logistics Center | Building 3 – 199,170 SF
8.0%
800,000
6.0% 4.0%
300,000
2.0% 0.0%
(200,000) 2Q 18
3Q 18
4Q 18
1Q 19
2Q 19
3Q 19
4Q 19
Absorption
Absorption
1Q 20
Deliveries
vs. Prev. Qtr
2Q 20
3Q 20
4Q 20
1Q 21
2Q 21
Vacancy
vs. 12 Mths Ago
1,203,531
452,142
1,431,435
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
9.2%
10.2%
8.7%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
848,703
1,498,681
635,570
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
4,346,933
4,712,351
3,027,747
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
835,632
183,036
1,344,501 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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