Q1 2022 INDUSTRIAL MARKET REPORT HOUSTON
P ro p er t y : The P i nes B usine ss Park
w w w.h o l t l u n s fo rd .co m
TABLE OF CONTENTS
03
Houston Industrial Submarket Coverage
04
Houston Industrial Market Experts
06
Houston Industrial Facts & Figures
07
Submarket Intelligence
HOUSTON 11451 Katy Freeway, Suite 300 Houston, Texas 77079 T 713.850.8500 | F 713.850.8550
www.holtlunsford.com
CLEVELAND
03 Q1 2022 HOUSTON INDUSTRIAL MARKET REPORT
HOUSTON INDUSTRIAL MAGNOLIA
CONROE
Submarket Coverage THE WOODLANDS FAR NORTH 7,290,240 SF
PRAIRIE VIEW
NEW CANEY
TOMBALL SPRING
NORTH 55,729,383 SF
DAYTON
GEORGE BUSH INTERCONTINENTAL AIRPORT
HUMBLE
NORTHWEST 114,334,361 SF
CYPRESS
MONT BELVIEU
BROOKSHIRE
NEAR EAST 24,970,792 SF
PORT AREA 57,139,749 SF
KATY
FAR WEST 26,932,350 SF HOUSTON
BAY TOWN
SHIP CHANNEL
GALLERIA
MEDICAL CENTER
SOUTHWEST 56,346,717 SF
PASADENA LA PORTE
HOBBY AIRPORT
SUGAR LAND ELLINGTON AIRPORT
SOUTH 25,167,727 SF
RICHMOND MISSOURI CITY
PEARLAND
HLC tracks statistics, facts, and figures for institutional-grade industrial and flex warehouses within the submarkets detailed above. LEAGUE CITY
04 Q1 2022 HOUSTON INDUSTRIAL MARKET REPORT
HOUSTON INDUSTRIAL
Market Experts
CRAIG BEAN
JOHN KRUSE
KELLY LANDWERMEYER
Managing Principal cbean@holtlunsford.com 713.602.3752
Senior Vice President jkruse@holtlunsford.com 713.602.3756
Senior Vice President klandwermeyer@holtlunsford.com 713.602.3762
CARTER HOLMES
THOMAS PFEIFER
MATT DEWHIRST
Market Associate cholmes@holtlunsford.com 713.602.3751
Market Analyst tpfeifer@holtlunsford.com 713.602.3768
Market Analyst mdewhirst@holtlunsford.com 713.602.3753
WHY OUR 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. 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 institutionalgrade 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 Northeast and Southeast 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.
05 Q1 2022 HOUSTON INDUSTRIAL MARKET REPORT
HLC OUTLOOK At the close of Q1 2022, market-wide vacancy for distribution and flex product stood at 8.4% for the Houston market. This is down 70 basis points from the year-end vacancy factor and 330 basis points from 12 months ago when the market sat at 11.7% vacant. 2021 was a historic year for the Houston industrial market with just over 26M SF of net absorption. In Q1 2022, we picked up right where we left off with a total of roughly 4.5M SF of net absorption. With just under 18M SF of product under construction, if we continue at our current pace, we should see vacancy continue to decline market-wide over the course of the calendar year.
HOUSTON INDUSTRIAL TRENDS AND TRANSACTIONS
Total leasing activity for calendar year 2021 was 35.7M SF market-wide, meaning that if we continue on our current pace for 2022, we will eclipse that number handily. Although we currently only count about 18M SF of product under construction, there is an additional 10M SF we are tracking that is proposed/in planning which will likely hit the numbers in Q2 or Q3 2022. The South submarket has seen a precipitous increase of new activity with several new spec projects either under construction or in the planning phase as of the end of Q1 2022. The availability of land along South Beltway 8 and Highway 288, coupled with the submarket’s proximity to the central business district and a high concentration of rooftops, make South Houston one of the hottest areas for new Class A product in the region right now.
The main driver of the market’s recovery from when it was mired in double-digit vacancy in 2020 and early 2021 is the historic amount of tenant demand we are seeing in virtually every submarket. Leasing activity totaled almost 11M SF during Q1 2022 which equals roughly 3% of the total amount of institutional product on the ground today. As a result of the tightening market, rents are beginning to increase steadily with the Port and Northwest submarkets leading the way. Based on our data, in the last 12 months we have seen rents go up roughly 12% in the Port submarket and roughly 8% in the Northwest on average. Additionally, for the first time in recent history, annual rate escalations in excess of 3% are beginning to become the norm as landlords try to keep pace with inflation. We expect this rent growth to continue in the remainder of 2022.
Trends & Transactions
Absorption
vs. Prev. Qtr
4,533,874
7,442,508
vs. 12 Mths Ago 1,653,679
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
8.5%
9.2%
11.7%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
10,754,338
7,967,019
8,549,137
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
17,874,531
15,522,503
19,408,174
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
2,201,919
4,838,621
2,968,229
06 Q1 2022 HOUSTON INDUSTRIAL MARKET REPORT
Facts & Figures
HOUSTON INDUSTRIAL OVERALL HOUSTON
OVERALL VACANCY
OVERALL ABSORPTION
13.0%
16,000,000
14.0%
16,000,000
12.0%
14,000,000
12.0%
14,000,000
11.0%
12,000,000
10.0%
10,000,000
9.0%
8,000,000
8.0%
8.5% 8.2%
7.1% 6.9%
6.0% 5.0%
2,000,000
4.0%
0
8.0%
Q1 19
Q2 19
Q3 19
Q4 19
ABSORPTION
Q1 20
Q2 20
Q3 20
Q4 20
Q1 21
DELIVERIES
2Q 21
3Q 21
4Q 21
1Q 22
Q1 19
0.3% Q2 19
Q3 19
DIRECT
VACANCY
Q4 19
Q1 20
Q2 20
Q3 20
Q4 20
Q1 21
Q2 21
SUBLET
EXISTING INVENTORY SUBMARKET
Q3 21
Q4 21
15,000,000
8,000,000
4,000,000
2.0%
2,000,000
0.0%
0 Q1 19
Q1 22
TOTAL
10,000,000
6,000,000
4.0%
0.3%
20,000,000
10,000,000
6.0%
4,000,000
25,000,000
12,000,000
10.0%
6,000,000
7.0%
OVERALL CONSTRUCTION
Q2 19
Q3 19
Q4 19
Q1 20
TOTAL NET
Q3 20
Q3 20
Q4 20
Q1 21
Q2 21
Q3 21
Q4 21
5,000,000
0
Q1 22
Q1 19
LEASING ACTIVITY
Q2 19
Q3 19
Q4 19
Q1 20
DELIVERED
Q2 20
Q3 20
Q4 20
Q1 21
Q2 21
Q3 21
Q4 21
Q1 22
UNDER CONSTRUCTION
VACANCY
# BLDGS.
TOTAL RBA
DIRECT SF
TOTAL SF
VAC. %
YTD NET ABSORPTION
YTD DELIVERIES
UNDER CONSTRUCTION SF
YTD LEASING ACTIVITY
182
26,932,350
3,083,880
3,099,435
11.5%
15,698
198,382
3,423,946
323,665
1,577
114,334,361
7,548,345
7,884,521
6.9%
1,434,337
915,472
3,844,078
2,841,425
North
615
55,729,383
6,672,201
6,793,897
12.2%
244,545
0
2,347,798
1,743,791
Far North
44
7,290,240
118,629
144,629
2.0%
(9,035)
0
108,960
52,570
Near East
246
24,970,792
1,704,292
1,740,674
7.0%
675,166
0
2,263,618
898,418
Port Area
328
57,139,749
5,576,806
5,759,840
10.1%
1,575,735
954,540
4,652,719
3,287,284
South
386
25,167,727
1,444,786
1,464,281
5.8%
2,872
0
151,342
255,366
Southwest
875
56,346,717
4,151,689
4,347,113
7.7%
594,556
133,525
1,082,070
1,351,819
4,253
367,911,319
30,300,628
31,234,390
8.5%
4,533,874
2,201,919
17,874,531
10,754,338
Far West Northwest
TOTALS
SOURCE: COSTAR Q1 2022 INDUSTRIAL REPORT
07 Q1 2022 HOUSTON INDUSTRIAL MARKET REPORT
FAR WEST
HLC OUTLOOK The Far West submarket is located along Interstate 10, stretching west from Highway 6 past Brookshire, and encompasses areas in Harris, Fort Bend, and Waller counties. The submarket benefits from immediate access to Interstate 10, convenient citywide connectivity via the Grand Parkway, continued population growth in West Houston and Katy, and the ability to serve multiple major cities in Texas 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, Domino’s, Ross Dress for Less, Glazer’s Wine & Spirits, 99 Cent Stores, and Igloo. Vacancy increased to 11.5% in Q1 2022 from 10.9% in Q4 2021. The Far West submarket continued to experience positive absorption but only a modest 15,698 SF SF during Q1 2022. However, this is following a strong 1,574,297 SF of absorption that occurred during Q4 2021 which is the second most ever recorded in the submarket since the record breaking 4,274,182 SF of positive absorption at the end of Q4 2020. The supply of new construction continues to increase with 198,382 SF of deliveries during Q1 2022 and another 3,852,314 SF under construction which represents approximately 22% of total under construction for the entire Houston industrial market. Multiple industrial developers continue to seek out land positions in the submarket with new projects in the pipeline.
SUBMARKET INTELLIGENCE
Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
15,698
1,159,297
238,192
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
11.5%
10.9%
10.3%
Leasing Act. 323,665
MONTGOMERY
vs. Prev. Qtr
VITAL STATS 14.0% WILLIS
3,500,000 10.0%
vs. Prev. Qtr
vs. 12 Mths Ago
3,423,946
2,805,368
1,936,277
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
198,382
595,974
913,919
2,500,000 2,000,000
6.0%
1,162,577
U/C SF
3,000,000
8.0%
vs. 12 Mths Ago
252,778
4,500,000 4,000,000
12.0%
4.0%
1,500,000
CLEVELAND
1,000,000 2.0% CONROE
500,000
0.0%
0 Q1 19
Q2 19
Q3 19
Q4 19
ABSORPTION
Q1 20
Q2 20
Q3 20
Q4 20
Q1 21
Q2 21
DELIVERIES
Q3 21
Q4 21
Q1 22
VACANCY
MAGNOLIA
NEW DEVELOPMENTS • Empire West Business Park | Phase 2 – a 2.3M SF THE WOODLANDS development with Stream Realty • Kingsland Ranch Logistic Park – a 1,582,035 SF development with Falcon Development/Clarion PRAIRIE VIEW
• Kingsland 10 Business Park – a 597,930 SF development with Adkisson Group Development NEW • Twinwood Distribution Center CANEY II – a 546K SF development with Clay Development
• Anserra – a 715,920 SF development with IDV/Sealy
TOMBALL
• Woods Road Business Park – a 1,073,393 SF development with Crow Holdings/CalSTRS
• SPRING Jordan Ranch Distribution Center – a 498,231 SF development with Phelan Bennett/WPT REIT
• I-10 West Trade Center – a 1,051,080 SF development with Hunt Southwest
• Pederson Logistics Center – a 343,760 SF development with Triten Real Estate Partners
• Empire West Business Park | Phase 1 – a 1,036,057 SF development with Stream Realty
• West Ten BusinessHUMBLE Park – a 205K SF development with Adkisson Group Development
CYPRESS
GEORGE BUSH INTERCONTINENTAL AIRPORT
• Stonelake West Ten – a 195,974 SF development with Stonelake Capital Partners
• Twinwood Distribution Center I – a 737,630 SF development with Clay Development/Exeter
• 7737 Cherokee Road – a 184,205 SF development with IDV/Alto Real Estate Funds • Westside 10 Industrial Park – a 167,120 SF development with Phelan Bennett/Growth Capital Partners
BROOKSHIRE
• Point West Distribution Center – a 133,900 SF development with Realty 1 Partners KATY
26,932,350 SF
LARGE EXISTING VACANCIES HOUSTON GALLERIA
BAY TOWN
• The Uplands Twinwood SHIP DCCHANNEL 1 – 737,630 SF* (*Shortterm Igloo lease for 368,815 SF) • Mason Creek Ranch Industrial Park – 373,860 SF MEDICAL CENTER
PASADENA
• Pederson Distribution Center – 205,200 SF • Stonelake West Ten – 195,974 SF HOBBY AIRPORT
SUGAR LAND ELLINGTON AIRPORT
LA PORTE
08 Q1 2022 HOUSTON INDUSTRIAL MARKET REPORT
SUBMARKET INTELLIGENCE
NORTHWEST
HLC OUTLOOK
Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
1,434,337
1,481,603
148,026
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
6.9%
7.4%
10.0%
Leasing Act. 2,841,425 U/C SF 3,844,078
vs. Prev. Qtr 2,295,945 vs. Prev. Qtr 3,594,336
vs. 12 Mths Ago 2,831,860 vs. 12 Mths Ago 2,926,196
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
915,472
546,515
191,836
NEW DEVELOPMENTS
The Northwest submarket is the largest of the eight submarkets HLC tracks in Houston with more than 114M SF of product. Geographically located north of Interstate 10 along the Highway 290 and West Sam Houston Parkway (Beltway 8) corridors, the submarket has historically offered a “Main and Main” location for distribution tenants needing to be close to the regional population center.
VITAL STATS 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
0.0%
(500,000) Q1 19
Q2 19
Q3 19
Q4 19
Q1 20
Q2 20
ABSORPTION
Q3 20
Q4 20
Q1 21
Q2 21
Q3 21
DELIVERIES
Q4 21
Q1 22
VACANCY
LARGE EXISTING VACANCIES
• Pinnacle Logistics Park – a 614,079 SF four (4) building project with Hillwood
• 4414 Hollister Road – 234,215 SF • 7301-7401 Security Way – 161,099 SF
• Weiser Business Park Phase I – a 557,490 SF three (3) building project with Trammell Crow and Clarion Partners
WILLIS
• Barker Cypress Distribution Center | 12020 Barkery Cypress Road – 142,100 SF MONTGOMERY
• 8602 Fallbrook Drive – 138,600 SF
• Highland Grove Phase II – a 385,450 SF two (2) building project with Modlo
• 7350 Langfield Road – 120,953 SF
CLEVELAND
CONROE
• Northwest Distribution Center – a 313,137 SF two (2) building project with IDI Logistics • The Mill at 249 – a 166,249 SF development with Greystar
The vacancy rate in the Northwest submarket decreased to 6.9% as of the end of Q1 2022, down from the high-water mark of 10.1% at Q2 2021. The submarket experienced leasing activity of 2,841,425 SF during Q1 2022 and positive net absorption of nearly 1.5M SF. There are several new spec projects in the pipeline expected to finish construction by year-end, but with tenant demand continuing to remain strong, we anticipate many of these projects to perform well. As a result of the tightening market, rents will continue to rise quarter-overquarter with the average NNN lease rate for a typical 100K SF lease rising above $0.50 per month by the end of the year, in our estimation.
MAGNOLIA
THE WOODLANDS
NEW CANEY
• Barker Cypress Distribution Center – a 142,100 SF development with Molto Properties PRAIRIE VIEW
Recently, the Northwest submarket has expanded well beyond Beltway 8, going along Highway 290 toward Cypress, and has several new spec developments in the works for the area surrounding the intersection of Highway 290 and Highway 99 (also known as the Grand Parkway). In addition to this outward expansion, long-overlooked infill sites inside of Beltway 8 have become increasingly in-demand as developers attempt to find sites close to the population center. As a result, land prices for well-located infill sites in the Northwest submarket have appreciated to above $10 per land square foot recently. All of this is driven by the strong tenant demand that began in the latter part of 2020 and has shown no signs of slowing down.
TOMBALL SPRING
DAYTON
GEORGE BUSH INTERCONTINENTAL AIRPORT
HUMBLE
114,334,361 SF CYPRESS
MONT BELVIEU
BROOKSHIRE
KATY
HOUSTON
BAY TOWN
SHIP CHANNEL
GALLERIA
MEDICAL CENTER
PASADENA LA PORTE
HOBBY AIRPORT
SUGAR LAND ELLINGTON AIRPORT
09 Q1 2022 HOUSTON INDUSTRIAL MARKET REPORT
SUBMARKET INTELLIGENCE
NORTH
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 Tollway (also known as Beltway 8), 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 almost 14M SF of new deliveries in that timeframe. Today, the North submarket has just over 55M SF total. Vacancy in the North submarket was 12.0% at the end of Q1 2022. The quarter was much less active from a leasing standpoint than past quarters, only experiencing 244,545 SF of total net absorption. In contrast, the two preceding quarters accounted for 2M SF and 1.9M SF of absorption each, respectively. This slowdown in activity is likely to be short-lived, however, as the overall market continues to tighten. MONTGOMERY
Currently, there is just under 2M SF of new construction underway in the submarket which is an increase of over 1M SF compared to the end of Q4 2021. There are a few large blocks of space (most notably five new spec buildings between 258K and 648K SF) that need to be leased in order to avoid vacancy increasing back to 2020-2021 levels when it averaged around 17% for several quarters. We expect to see some significant leases get signed in Q2 2022 that should prevent that from happening. MAGNOLIA
VITAL STATS
Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
244,545
2,005,984
173,928
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
12.2%
12.6%
19.8%
15.0%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
13.0%
1,743,791
1,426,736
1,299,794
11.0%
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
9.0%
21.0%
1,648,258
869,452
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
509,600
988,707
1,100,000 600,000 100,000 (400,000) Q2 19
Q3 19
Q4 19
ABSORPTION
Q1 20
Q2 20
Q3 20
Q4 20
Q1 21
Q2 21
Q3 21
DELIVERIES
Q4 21
Q1 22
VACANCY
LARGE EXISTING VACANCIES
• Prologis Presidents Park Amazon BTS – a 629,186 SF development with Prologis
• 10100 W Lake Houston Parkway – 648,720 SF
WILLIS
• 13300 JFK Boulevard – 524,160 SF
• Compass Logistics Center – a 418,338 SF development with Seefried and USAA
• 17440 Highway 59 – 509,600 SF • 13800 North Freeway – 356,975 SF
CLEVELAND
• Beltway 8 & East Little York Road – a 310,792 SF development with Adkisson Development
• 21803 Cypress Slough Drive – 258K SF
CONROE
• 121 Esplanade Boulevard – 244,550 SF
• Pinto 23 – a 282,190 SF development with Griffin Partners • Kennedy Greens South | Building 2 – a 280,620 SF development with Clay Development NEW CANEY
SPRING
DAYTON
HUMBLE
CYPRESS
55,729,383 SF
MONT BELVIEU
KATY
HOUSTON GALLERIA
1,600,000
Q1 19
PRAIRIE VIEW
BROOKSHIRE
2,100,000
5.0%
NEW DEVELOPMENTS
GEORGE BUSH INTERCONTINENTAL AIRPORT
2,600,000
17.0%
7.0%
2,347,798
THE WOODLANDS
19.0%
BAY TOWN
SHIP CHANNEL
10 Q1 2022 HOUSTON INDUSTRIAL MARKET REPORT
SUBMARKET INTELLIGENCE
FAR NORTH
HLC OUTLOOK
Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
(9,035)
620,111
415,442
12.0%
vs. Prev. Qtr
vs. 12 Mths Ago
2.0%
1.9%
3.2%
8.0%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
6.0%
52,570
5,750
24,774
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
108,960
492,262
2,823,662
vs. Prev. Qtr
vs. 12 Mths Ago
-
612,000
402,300
1,600,000 1,400,000
Vacancy
10.0%
Delivered SF
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 and the rest of Texas are just some attributes that make the Far North submarket attractive to end users. Another important driver of activity here are the local tax incentives offered by Montgomery County and its various municipalities to attract businesses. This emerging submarket is home to several large distribution centers for companies such as Five Below, Wal-Mart, CVS, Home Depot, American Furniture Warehouse, and Lowe’s.
VITAL STATS 1,200,000 1,000,000 800,000 600,000 400,000 4.0%
200,000 0
2.0%
(200,000) 0.0%
(400,000) Q1 19
Q2 19
Q3 19
Q4 19
Q1 20
Q2 20
ABSORPTION
Q3 20
Q4 20
Q1 21
Q2 21
DELIVERIES
Q3 21
Q4 21
Q1 22
VACANCY
As the Houston market’s smallest submarket, with only 7.3M SF of institutional-grade industrial product, Far North tends to be overlooked by many investors and brokers. Vacancy was 2.0% at the end of Q1 2022 and has remained below 4% going back to Q4 2020. Much of the activity has been of the build-to-suit variety and, until we see more spec projects break ground, it will be hard to gauge the viability of this submarket longterm. However, one thing that we believe to be true, as Montgomery County and Far North/Northwest Harris County continue to experience burgeoning population growth, highlighted by Conroe and Tomball, there will be an increased need for shallow-bay assets to service the growing rooftops in the area.
NEW DEVELOPMENTS • Grand Parkway – a 591,200 SF three (3) building project with Lincoln Property Company
WILLIS
MONTGOMERY
CLEVELAND
CONROE
7,290,240 SF MAGNOLIA
THE WOODLANDS
PRAIRIE VIEW
NEW CANEY
TOMBALL SPRING
DAYTON
GEORGE BUSH INTERCONTINENTAL AIRPORT
HUMBLE
CYPRESS
MONT BELVIEU
BROOKSHIRE
KATY
GNOLIA
MONTGOMERY
11 Q1 2022 HOUSTON INDUSTRIAL MARKET REPORT
SUBMARKET INTELLIGENCE CLEVELAND
NEAR EAST
CONROE
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 thirdparty 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. Additionally, the rent THE WOODLANDS discount this submarket enjoyed relative to competing Houston submarkets has moderated over the past five years, reducing its attractiveness to price-sensitive users. One year ago, market fundamentals and outlook for the Near East were concerning from an ownership TOMBALL rate had steadily drifted higher, perspective. The vacancy rising from 8.3% at the end of Q1 2019, to 12.1% in Q1 2021. Tenants were vacating the sub-market in favor of other Houston sub-markets, notably the Port and North. There was a general lack of organic growth from existing tenants, and new tenants to the sub-market were in short supply.
SPRING
Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
675,166
252,807
(775,921)
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
7.0%
9.7%
12.1%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
898,418
728,028
503,721
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
2,263,618
1,594,857 NEW
16,759
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
-
-
CANEY
VITAL STATS 14.0% 600,000
12.0%
400,000
10.0%
200,000 8.0% 0 6.0%
(200,000)
4.0%
(400,000)
2.0%
(600,000) (800,000)
0.0% Q1 19
Q2 19
Q1 20
Q2 20
Q3 20
DAYTON
• Gulf Stream Marine has signed a 127,734 SF lease in 8607 CityPark. • Buske Logistics has signed a 116,173 SF lease in 8550 Market Street. • Metrix Logistics has signed a 83,250 SF lease in 8000 Market Street. HUMBLE
GEORGE BUSH INTERCONTINENTAL AIRPORT
• Smart Warehousing has signed a 73,640 SF lease in 8786 Wallisville.
MONT BELVIEU
24,970,792 SF
HOUSTON
BAY TOWN
SHIP CHANNEL
MEDICAL CENTER
PASADENA LA PORTE
HOBBY
Q4 20
Q1 21
DELIVERIES
TOP LEASE TRANSACTIONS
The recent absorption has come from a variety of sources. Both organic growth of existing tenants as well as new players entering the market. The most common thread for this growth has been third-party logistics providers. The improvement in the vacancy rate has also come with a notable increase in rent with 3PL’s willingly paying these increases.
Relative to other sub-markets, new development remains GALLERIA muted for this submarket with only a handful of projects currently under construction. However, that could change quickly as there are several spec projects proposed totaling 1.66M SF.
Q4 19
ABSORPTION
• Jaguar Logistics has signed a 191,614 SF lease in 8705 CityPark.
The last 12 months have seen a dramatic improvement in both market fundamentals and general outlook, punctuated by historic absorption in Q1 2022. Over the last three years, the three best-performing quarters for absorption CYPRESS occurred in the last 12 months. Absorption in Q1 2022 was double the next highest quarter (Q2 2021). The Near East submarket finished Q1 2022 with a vacancy rate of 7.0%, its lowest rate in three years by a comfortable margin. For tenants now looking for space in excess of 100K SF, there are currently only three options (there were seven at the beginning of the year).
For additional optimism in the near-term, the gap between available space and vacant space narrowed considerably. A large gap in these metrics typically offers a harbinger of things to come (i.e. known/suspected move-outs will register as available but not vacant). The Near East had consistently struggled with a large delta between these numbers for several years, but that has now been erased.
Q3 19
Q2 21
Q3 21
Q4 21
Q1 22
VACANCY
12 Q1 2022 HOUSTON INDUSTRIAL MARKET REPORT
SUBMARKET INTELLIGENCE
PORT AREA
HLC OUTLOOK
Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
1,575,735
815,975
995,406
Vacancy 10.1% Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
11.4%
12.3%
vs. Prev. Qtr
vs. 12 Mths Ago
3,287,284
2,140,736
956,802
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
4,652,719
3,629,809
2,730,493
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
954,540
1,855,585
221,205
The Port submarket is named for its proximity to the Port of Houston’s container terminals. This submarket hosts 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.
VITAL STATS 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
0.0%
(500,000) Q1 19
Q2 19
Q3 19
Q4 19
Q1 20
Q2 20
ABSORPTION
Q3 20
Q4 20
Q1 21
Q2 21
Q3 21
Q4 21
DELIVERIES
With 94% of the institutional product constructed since 2000, this submarket is relatively young compared to other Houston submarkets.The main drivers for the submarket include third-party logistics providers (including the majority of the region’s plastic resin repackaging), downstream energy service providers, and retail (ex. Walmart, Home Depot, IKEA, Webstaurant, Floor & Decor).
Q1 22
VACANCY
WILLIS
NEW DEVELOPMENTS
The submarket had an impressive 2021. After beginning the year with a vacancy rate of 13.6%, the market was able to absorb both vacancy and 2021 new deliveries to end the year approximately 10% vacant. That trend continued during Q1 2022, with absorption outpacing deliveries to lower the vacancy rate further to 9.2%.
MONTGOMERY
• Cedar Port DC - a 1,211,620 SF development with TGS •
Cedar Port DC2 - a 496,421 SF development with TGS
•
Bayport 146 - a 454,600 SF development with Transwestern
CLEVELAND
CONROE
MAGNOLIA
THE WOODLANDS
PRAIRIE VIEW
The new development pipeline remains active with approximately 3.8M SF under construction and some of that spoken for. Based on the trailing threeyear average for absorption, this is a manageable pipeline of new product for the submarket.
NEW CANEY
TOMBALL SPRING
Proposed new development increased 20% since the beginning of the year and now stands at just under 11M SF. Due to a diminishing supply of land sites west of the ship channel, the majority of the proposed new development is east of the channel in Cedar Port, Ameriport, and pockets along the Interstate 10 corridor.
DAYTON
GEORGE BUSH INTERCONTINENTAL AIRPORT
HUMBLE
CYPRESS
MONT BELVIEU
BROOKSHIRE
KATY
57,139,749 SF
HOUSTON
BAY TOWN
SHIP CHANNEL
GALLERIA
MEDICAL CENTER
PASADENA LA PORTE
HOBBY AIRPORT
SUGAR LAND ELLINGTON AIRPORT
RICHMOND MISSOURI CITY PEARLAND
LEAGUE CITY
Despite optimism in the resin repackaging/export business at the end of 2021, challenges remain. Most notably, supply chain issues have caused shipping delays in getting resin waterborne and to its destination. The latest Shanghai (largest port in the world) lock-down is exacerbating the problem with 20% of the world’s supply of container ships awaiting berthing around the globe. So, while the resin warehouses are full and containers have been loaded, the resin is moving slowly which reduces throughput and places financial pressure on the repackagers.
WILLIS
13 Q1 2022 HOUSTON INDUSTRIAL MARKET REPORT
SUBMARKET INTELLIGENCE
MONTGOMERY
SOUTH
HLC OUTLOOK
PRAIRIE VIEW
BROOKSHIRE
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 Interstate 610, Highway 288, and Highway 90 allow for easy access to the primary loops for traversing Houston from the South submarket. While the MAGNOLIA 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 in the South submarket when compared to the nearby Southwest submarket. Land values in close proximity to the Texas Medical Center and Interstate 610 have increased TOMBALL rapidly in recent years making new industrial development cost prohibitive. Industrial development opportunities continue to exist in the outer areas of the submarket near Sam Houston Tollway and Highway 288. At the end of Q1 2022, vacancy was 5.8% in the South submarket which remains unchanged from the Q4 2021. The South submarket experienced minimal CYPRESS positive absorption during Q1 2022 which is typical for this smaller and lower deal velocity submarket. However, the profile for the South submarket is quickly changing as developers have recently secured land positions for new developments which will result in record breaking under construction starts in the second half of the 2022 calendar year. The appeal of the submarket is due to the strategic location between the Port and Southwest submarkets with quality sites still readily available in close proximity to major thoroughfares such as Highway 288 and Beltway 8 when compared to more land constraint submarkets. In addition to the recently completed South Belt KATY Central Phase I by IDV, Summit Real Estate Group nears completion of their 151,342 SF spec Corporate Center Fannin. Looking ahead in 2022, Hines plans to break ground on Phase 1 of Lone Star Logistics Park which will consist of four (4) buildings totaling 658,856 SF; Carson Companies plans to break ground on two (2) buildings totaling 607,039 SF as part of Phase 1 for its Carson 288 project; Hillwood plans to break ground on Beltway 66 Business Park which will consist of four (4) buildings totaling 925,960 SF; and Lovett Industrial plans to break ground on Phase 1 of two (2) buildings SUGAR LAND totaling 388,795 SF as part of its 610 Business District development.
CLEVELAND
CONROE
THE WOODLANDS
Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
2,872
545,091
5,864
Vacancy
vs. Prev. Qtr
vs. 12 Mths Ago
5.8%
5.8%
6.6%
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
600,000 500,000 400,000
8.0%
300,000 200,000
6.0%
100,000 0 4.0%
255,366
645,900
237,059
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
151,342
219,342
457,055
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
-
20,486
112,000
NEW CANEY
VITAL STATS 10.0%
(100,000) (200,000)
2.0%
(300,000) (400,000)
0.0%
(500,000) Q1 19
Q2 19
Q3 19
Q4 19
ABSORPTION
Q1 20
Q2 20
Q3 20
Q4 20
Q1 21
DELIVERIES
SPRING
NEW DEVELOPMENTS
LARGE EXISTING VACANCIES DAYTON
• Beltway 66 Business Park – a 925,960 SF development with Hillwood HUMBLE
• Broad Street – 102,142 SF
GEORGE BUSH INTERCONTINENTAL AIRPORT
• Lone Star Logistics Park – a 658,856 SF development with Hines • Carson 288 – a 607,039 SF development with Carson Companies • South Belt Central | Phase I – a 436,569 SF development with IDV • 610 Business District | Phase I – a 388,795 SF development with Lovett Industrial
MONT BELVIEU
• South Point Business Park | Phase II | Amazon BTS – a +/- 200,400 SF development with National Property Holdings HOUSTON
BAY TOWN
SHIP CHANNEL
GALLERIA
MEDICAL CENTER
PASADENA LA PORTE
HOBBY AIRPORT
25,167,727 SF
ELLINGTON AIRPORT
RICHMOND MISSOURI CITY PEARLAND
LEAGUE CITY
Q2 21
Q3 21
Q4 21
Q1 22
VACANCY
14 Q1 2022 HOUSTON INDUSTRIAL MARKET REPORT
SUBMARKET INTELLIGENCE
SOUTHWEST
HLC OUTLOOK
Absorption
vs. Prev. Qtr
vs. 12 Mths Ago
594,556
561,640
452,742
Vacancy
vs. Prev. Qtr
12.0%
6,000,000
vs. 12 Mths Ago
10.0%
5,000,000
7.7%
8.6%
9.9%
8.0%
4,000,000
Leasing Act.
vs. Prev. Qtr
vs. 12 Mths Ago
6.0%
3,000,000
4.0%
1,351,819
471,146
1,532,550
U/C SF
vs. Prev. Qtr
vs. 12 Mths Ago
1,082,070
1,538,271
7,648,280
Delivered SF
vs. Prev. Qtr
vs. 12 Mths Ago
133,525
698,461
138,262
The Southwest submarket is located west of Interstate 610, bordered on the north by Interstate 10, and extends just east of the Fort Bend Parkway Toll Road 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.
VITAL STATS
WILLIS
2,000,000 MONTGOMERY
2.0%
1,000,000
CLEVELAND
0.0%
0 Q1 19
Q2 19
Q3 19
Q4 19
Q1 20
Q2 20
Q3 20
ABSORPTION
Q4 20
Q1 21
Q2 21
Q3 21
Q4 21
DELIVERIES
Q1 22
CONROE
VACANCY
MAGNOLIA
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
LARGE EXISTING VACANCIES THE WOODLANDS
• Park 8Ninety | 611 Highway 90A – 440,014 SF
NEW CANEY
• 10431 Mula Road – 311,205 SF PRAIRIE VIEW
TOMBALL
• 411 Cravens Road – 222,031 SF
SPRING
• Sugar Land Crossroads | Building 2 – 199,978 SF
DAYTON
• City Park Logistics Center | Building 3 – 199,170 SF
• Weatherford Farms Industrial Park – a 568,084 SF development with Crow Holdings
• 9500 W Sam Houston Parkway South – 190K SF
• Five Corners – a 541,946 SF development with Levey Group
• City Park Logistics Center | Building 2 – 176,319 SF
GEORGE BUSH INTERCONTINENTAL AIRPORT
CYPRESS
• Park 8Niney | 702 Cravens Road – 177,474 SF
• Kirkwood Industrial – a 540,124 SF development with Crow Holdings • City Park Logistics Center – a 438,202 SF development with Logistics Property Company
Vacancy was 7.7% at the end of Q1 2022 which is a decrease from the 8.6% vacancy rate in Q4 2021. The vacancy rate decreased due to the positive 594,556 SF of absorption that occurred during Q4 2021. The submarket currently has 1,082,070 SF under construction. The Southwest submarket is currently experiencing less new construction when compared to Port Area, Northwest, North, and Far West/Katy submarkets. However, this phenomenon has more to do with the lack of readily available developments sites than tenant demand experienced in the Southwest submarket. 2021 proved to be a record-setting year for the Southwest submarket, and the early indication based on Q1 2022 numbers looks like this trend will continue. HUMBLE
MONT BELVIEU
BROOKSHIRE
KATY
• Stafford Crossing – a 334,200 SF development with Transwestern and AEW
HOUSTON
BAY TOWN
SHIP CHANNEL
GALLERIA
• Nova Logistics Park – a 326,812 SF development with Lovett Commercial
MEDICAL CENTER
PASADENA
LA PORTE
• Sugar Land Crossroads – a 326,807 SF development with Transwestern and Diamond Realty Investments
HOBBY AIRPORT
SUGAR LAND
56,346,717 SF
ELLINGTON AIRPORT
RICHMOND MISSOURI CITY PEARLAND
LEAGUE CITY
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