Q2 2022 Houston Industrial Market Report

Page 1

Q2 2022 INDUSTRIAL MARKET REPORT HOUSTON

P ro p er t y : E a s t B el t B us ine 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 Q2 2022 HOUSTON INDUSTRIAL MARKET REPORT

HOUSTON INDUSTRIAL MAGNOLIA

CONROE

Submarket Coverage THE WOODLANDS FAR NORTH 7,783,806 SF

PRAIRIE VIEW

NEW CANEY

TOMBALL SPRING

NORTH 56,714,361 SF

DAYTON

GEORGE BUSH INTERCONTINENTAL AIRPORT

HUMBLE

NORTHWEST 115,638,327 SF

CYPRESS

MONT BELVIEU

BROOKSHIRE

NEAR EAST 25,837,774 SF

KATY

PORT AREA 57,404,304 SF

FAR WEST 27,190,789 SF HOUSTON

BAY TOWN

SHIP CHANNEL

GALLERIA

MEDICAL CENTER

SOUTHWEST 57,156,938 SF

PASADENA LA PORTE

HOBBY AIRPORT

SUGAR LAND ELLINGTON AIRPORT

SOUTH 25,026,917 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 Q2 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 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 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 Q2 2022 HOUSTON INDUSTRIAL MARKET REPORT

HLC OUTLOOK At the close of Q2 2022, market-wide vacancy for distribution and flex product stood at 6.9% for the Houston market which represents the lowest vacancy factor since 2018, and a year-over-year decline of 450 basis points. Net absorption came in at a very healthy 6,729,289 SF for Q2 2022, surpassing the Q1 2022 total by more than 1M SF and keeping the market on pace for another 20M SF-plus annual total. New deliveries ticked up slightly to just over 3M SF, a number that is still far below the quarterly average for 2021 which was roughly 5.8M SF. If there is one statistic that is worth keeping a keen eye on for the rest of the calendar year, it is the roughly 24M SF of product currently under construction. Furthermore, what is not captured in this number is approximately 10M SF of product that we are not yet categorizing as under construction, but that is “in for permit” and will likely be added to our total in the next 90-150 days. As these projects officially kick-off and hit the market’s overall inventory, it is important that tenant demand remains strong or there is a risk vacancy could begin trending upwards. To expound on the point above, much like in Q1 2022, the main driver of the market’s continued recovery from when it was experiencing 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 9,332,627 SF during Q2 2022, a slight decrease from Q1 2022, but still a historically high number for our market. There are three distinct submarkets that are benefiting the most from this frenzy of activity: the Northwest, North, and Port submarkets. These three submarkets have accounted for nearly 75% of YTD leasing activity while only making up 61.6% of the total market’s inventory. Due to continued population growth and the need for retailers to import large quantities of consumer goods through the Port of Houston, we are expecting these submarkets to continue to outpace the rest of the market, which will lead to tangible rent growth through the rest of 2022. Alternatively, if there is a submarket that is worth monitoring for signs of trouble, it would be the Far West submarket. Although vacancy did tick down slightly during Q2 2022 to 9.5%, we are tracking approximately 6M SF of product currently under construction, almost all speculative. For a submarket that has averaged just over 500K SF of quarterly absorption since the beginning of 2021, it will be imperative that tenant demand increases above historical averages (outside of design-build requirements).

HOUSTON INDUSTRIAL

Trends & Transactions

TRENDS AND TRANSACTIONS Total YTD leasing activity stands at over 20M SF market-wide, outpacing our historic 2021 total so far. Rental rates for new deals and renewals are climbing and concessions are decreasing as the market has tightened up this year. Additionally, for the first time, we are seeing annual rent increases on deals throughout the market. We believe this will be a long-lasting trend as inflation continues to beset the macro-economy. Capital markets are experiencing turbulence for the first time in several years as rising interest rates have caused many potential buyers to reassess both deals on the market and new developments. Adding to this challenge is the continued increase in material and labor costs.

Absorption

vs. Prev. Qtr

6,729,289

5,383,392

vs. 12 Mths Ago 4,431,164

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

6.9%

7.9%

11.4%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

9,332,627

11,261,443

13,169,979

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

24,018,541

21,401,580

20,018,036

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

3,302,617

2,195,019

4,329,129

OVERALL HOUSTON

OVERALL VACANCY

16.0%

16,000,000

12.0%

12,000,000

8.0%

8,000,000

14.0% 12.0% 10.0% 7.7%

4.0%

4,000,000

0.0%

0

7.3%

6.9%

8.0%

6.7%

6.0% 4.0% 2.0%

0.3%

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

Q2 22

Q2 19

0.2%

Q3 19

Q1 20

Q2 20

Q3 20

Q4 20

DIRECT

VACANCY

OVERALL ABSORPTION

Q4 19

Q1 21

Q2 21

Q3 21

Q4 21

Q1 22

SUBLET

0.0%

Q2 22

TOTAL

OVERALL CONSTRUCTION

18,000,000

25,000,000

16,000,000

20,000,000

14,000,000 12,000,000

15,000,000

10,000,000 8,000,000

10,000,000

6,000,000 4,000,000

5,000,000

2,000,000

0

0

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

TOTAL NET

Q3 20

Q4 20

Q1 21

Q2 21

Q3 21

Q4 21

LEASING ACTIVITY

Q1 22

Q2 22

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

DELIVERED

Q3 20

Q4 20

Q1 21

Q2 21

Q3 21

Q4 21

Q1 22

UNDER CONSTRUCTION

Q2 22


06 Q2 2022 HOUSTON INDUSTRIAL MARKET REPORT

HOUSTON INDUSTRIAL

Facts & Figures

EXISTING INVENTORY SUBMARKET

VACANCY

# BLDGS.

TOTAL RBA

DIRECT SF

TOTAL SF

VAC. %

YTD NET ABSORPTION

YTD DELIVERIES

UNDER CONSTRUCTION SF

YTD LEASING ACTIVITY

Far West

185

27,190,789

2,563,843

2,579,398

9.5%

859,407

516,054

5,953,736

827,831

Northwest

1,617

115,638,327

7,321,959

7,532,521

6.5%

2,382,714

1,675,180

3,729,241

4,312,757

North

606

56,714,361

4,745,067

4,841,781

8.5%

2,507,772

793,151

2,618,356

5,015,955

Far North

45

7,783,806

253,384

279,384

3.6%

348,472

492,262

1,815,402

84,670

Near East

247

25,837,774

1,226,678

1,263,060

4.9%

1,287,234

134,454

2,129,164

1,904,517

Port Area

339

57,404,304

3,647,957

3,728,187

6.5%

3,290,753

1,087,140

5,402,906

4,776,282

South

382

25,026,917

988,274

1,021,661

4.1%

415,292

0

1,417,237

1,006,104

Southwest

882

57,156,938

4,365,372

4,559,502

8.0%

1,021,037

799,395

952,499

2,665,954

4,303

372,753,216

25,112,534

25,805,494

6.9%

12,112,681

5,497,636

24,018,541

20,594,070

TOTALS

SOURCE: COSTAR


07 Q2 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 decreased to 9.5% in Q2 2022 from 11.1% in Q1 2022. The Far West submarket continued to experience positive absorption of 709,809 SF during Q2 2022 trailing only the Northwest, North, and Port submarkets. A notable deal that was signed this quarter was medical supply company Iskikel’s lease for 195,974 SF in Stonelake’s West Ten building. The supply of new construction continues to increase with 317,672 SF of deliveries during Q2 2022 and another 5,786,616 SF under construction which represents approximately 28% 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

709,809

149,598

396,447

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

9.5%

11.1%

10.2%

Leasing Act.

MONTGOMERY

vs. Prev. Qtr

vs. 12 Mths Ago

504,166

323,665

1,009,476

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

5,953,736

5,260,680

2,339,440

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

317,672

198,382

454,416

VITAL STATS 15.0%

4,500,000

WILLIS

12.0% 3,000,000 9.0%

6.0% 1,500,000 CLEVELAND

3.0% CONROE

0.0%

0

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

Q3 20

ABSORPTION

Q4 20

Q1 21

Q2 21

Q3 21

DELIVERIES

Q4 21

Q1 22

Q2 22

VACANCY

MAGNOLIA

NEW DEVELOPMENTS

PRAIRIE VIEW

LARGE EXISTING VACANCIES

• Empire West Business Park | Phase 2 – a 2.3M SF THE WOODLANDS development with Stream Realty

• The Uplands Twinwood DC 1 – 737,630 SF* NEW CANEY (*short-term Igloo lease for 368,815 SF)

• Kingsland Ranch Logistic Park – a 1,582,035 SF development with Falcon Development/Clarion

• Pederson Distribution Center – 205,200 SF

TOMBALL

• Twinwood Distribution Center II – a 546K SF development with Clay Development

SPRING

• Pederson Logistics Center – a 343,760 SF development with Triten Real Estate Partners • Westside 10 Industrial Park – a 167,120 SF development with Phelan Bennett/Growth CYPRESS Capital Partners

GEORGE BUSH INTERCONTINENTAL AIRPORT

HUMBLE

• Point West Distribution Center – a 133,900 SF development with Realty 1 Partners

BROOKSHIRE

KATY

27,190,789 SF HOUSTON

BAY TOWN

SHIP CHANNEL

GALLERIA

MEDICAL CENTER

PASADENA LA PORTE

HOBBY AIRPORT

SUGAR LAND ELLINGTON AIRPORT


08 Q2 2022 HOUSTON INDUSTRIAL MARKET REPORT

SUBMARKET INTELLIGENCE

NORTHWEST

HLC OUTLOOK

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

957,747

1,424,967

904,078

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

6.5%

6.7%

9.9%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

2,161,284

2,151,473

3,433,836

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

3,729,241

4,596,195

2,706,769

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

771,608

903,572

1,067,668

NEW DEVELOPMENTS

The Northwest submarket is the largest of the eight submarkets HLC tracks in Houston with more than 115M 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 12.0%

3,000,000 2,500,000 2,000,000

8.0%

1,500,000 1,000,000 4.0%

500,000 0

0.0%

-500,000

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

Q2 22

VACANCY

LARGE EXISTING VACANCIES

• Interchange 249 | Phase I – a 1,881,318 SF spec development with Lovett Industrial

• 290 Eight Distribution Center | 12400 W Little York Road – 295,680 SF

• Pinnacle Logistics Park – a 614,079 SF spec development with Hillwood

• 4414 Hollister Road – 234,215 SF

WILLIS

• Highland Grove | Building 8 | 10640 Telge Road – 226,720 SF MONTGOMERY

• Northwest Distribution Center – a 313,137 SF spec development with IDI Logistics

CLEVELAND

• 7301-7401 Security Way – 161,099 SF

CONROE

• The Mill at 249 – a 166,249 SF spec development with Greystar

The vacancy rate in the Northwest submarket decreased to 6.5% as of the end of Q2 2022. Net absorption came in at just under 1M SF while new deliveries totaled 771,608 SF. We are currently tracking just over 3.7M SF under construction in the submarket with several more projects in the planning phase and set to be announced later this year.

• Barker Cypress Distribution Center | 12020 Barkery Cypress Road – 142,100 SF • Grand National Business Park | 8602 Fallbrook Drive – 138,600 SF MAGNOLIA

THE WOODLANDS

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, longoverlooked 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 risen to over $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.

NEW CANEY

TOMBALL SPRING

Perhaps more than any other submarket, except for the Port, the Northwest submarket has seen strong rental rate growth of late, particularly for buildings that are located in “infill” pockets of the submarket. Many developers have been able to underwrite this rent growth to counterbalance increasing land prices, construction costs, and interest rates. To that end, our outlook remains extremely optimistic for this submarket as we believe that continued population growth will drive the need for even more warehouse space close to rooftops. DAYTON

GEORGE BUSH INTERCONTINENTAL AIRPORT

HUMBLE

115,638,327 SF CYPRESS

MONT BELVIEU

BROOKSHIRE

KATY

HOUSTON

BAY TOWN

SHIP CHANNEL

GALLERIA

MEDICAL CENTER

PASADENA LA PORTE

HOBBY AIRPORT

SUGAR LAND ELLINGTON AIRPORT


09 Q2 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 (Beltway 8), and Highway 59/Interstate 69. This submarket has been one of the fastest growing submarkets in recent years due to proximity to rooftops and the availability of land for new development. Vacancy in the North submarket was 8.5% at the end of Q2 2022. By our calculations, this is the first time vacancy has been in single digits since Q3 2019 here. Net absorption was extremely strong, coming in at over 1.8M SF for the quarter and equalling over 2.5M SF YTD, highlighted by the sale of 10100 W Lake Houston Parkway to Broadrange Logistics (a user). MONTGOMERY

Currently, there is just over 2.6M SF of new construction underway in the submarket and leasing activity equalled over 3M SF for the quarter, highlighted by a 1.2M SF deal at Prologis Presidents Park with Wayfair.

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

1,828,226

679,546

1,161,373

Vacancy

vs. Prev. Qtr

VITAL STATS

vs. 12 Mths Ago

3,000,000

20.0%

2,500,000

8.5%

10.5%

17.8%

17.0%

2,000,000

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

14.0%

1,500,000

11.0%

1,000,000

8.0%

500,000

3,163,588

1,852,367

3,817,008

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,618,356

2,593,586

1,468,095

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

793,151

-

219,000

5.0%

0

Q2 19

Q3 19

Q4 19

Q1 20

ABSORPTION

NEW DEVELOPMENTS

Q2 20

Q3 20

Q4 20

Q1 21

Q2 21

Q3 21

Q4 21

DELIVERIES

• Intercontinental Crossing Park – a 318,240 SF spec development with The National Realty Group

• Kennedy Greens Distribution Center I | 13300 JFK Boulevard – 329,680 SF

CLEVELAND

• Kennedy Greens South | Building 2 – a 280,620 SF spec development with Clay Development

• Cypress Preserve | 21803 Cypress Slough Drive – 257,890 SF

CONROE

• 971 N Sam Houston Pkwy E – 251,220 SF

NEW CANEY

PRAIRIE VIEW SPRING

DAYTON

HUMBLE

CYPRESS

56,714,361 SF

MONT BELVIEU

KATY

HOUSTON GALLERIA

VACANCY

• Rankin 45 Distribution Center | 13800 North Freeway – 356,975 SF

• Pinto 23 – a 282,190 SF spec development with Griffin Partners

GEORGE BUSH INTERCONTINENTAL AIRPORT

Q2 22

• 59 Logistics Center | 17440 Highway 59 – 509,600 SF

WILLIS

THE WOODLANDS

Q1 22

LARGE EXISTING VACANCIES

MAGNOLIA

BROOKSHIRE

23.0%

BAY TOWN

SHIP CHANNEL


10 Q2 2022 HOUSTON INDUSTRIAL MARKET REPORT

SUBMARKET INTELLIGENCE

FAR NORTH

HLC OUTLOOK

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

357,507

(9,035)

264,776

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 12.0%

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

10.0%

3.6%

2.0%

2.2%

8.0%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

6.0%

32,100

52,570

854,600

4.0%

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,815,402

1,127,564

2,604,662

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

492,262

-

219,000

1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000

2.0%

0

0.0%

-200,000

Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

Q3 20

ABSORPTION

Q4 20

Q1 21

Q2 21

Q3 21

DELIVERIES

Q4 21

Q1 22

Q2 22

VACANCY

As the Houston market’s smallest submarket, with only about 8M SF of institutional-grade industrial product, Far North tends to be overlooked by many investors and brokers. Vacancy was 3.6% at the end of Q2 2022 and has remained below 4% going back to Q4 2020. Much of the activity has been of the build-to-suit variety here. We are beginning to see a few speculative developments announced within the submarket, highlighted by Lincoln Property Company’s Grand Parkway development and Lovett Industrial’s Conroe Commerce Center.

NEW DEVELOPMENTS • Conroe Commerce Center | Phase I – a 1,224,202 SF development with Lovett Industrial • Grand Parkway – a 591,200 SF three (3) building project with Lincoln Property Company

WILLIS

MONTGOMERY

CLEVELAND

CONROE

7,783,806 SF MAGNOLIA

THE WOODLANDS

PRAIRIE VIEW

NEW CANEY

TOMBALL SPRING

DAYTON

GEORGE BUSH INTERCONTINENTAL AIRPORT

HUMBLE

CYPRESS

MONT BELVIEU

BROOKSHIRE

KATY


GNOLIA

MONTGOMERY

11 Q2 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 WOODLANDS recent years with the growth of the PortTHE submarket. Additionally, the rent discount this submarket enjoyed relative to competing Houston submarkets has moderated over the past five years, reducing its attractiveness to price-sensitive users. At the beginning of 2021, the submarket vacancy rate TOMBALL hit 11.8%. This was not driven by new deliveries as new construction was minimal, but was due to a number of larger tenants exiting the submarket in late 2020/early 2021 in favor of competing submarkets (notably the North and Port). The submarket had been on a four-year decline to that point, as the vacancy rate had steadily risen from sub-5% as recently as 2017. In addition to the tenant losses, there was a general lack of organic growth from existing tenants, and new tenants to the sub-market were in short supply.

SPRING

vs. Prev. Qtr

vs. 12 Mths Ago

420,454

866,780

340,010

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

4.9%

6.0%

10.4%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

263,223

1,641,294

377,574

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,129,164

1,594,857 NEW

16,759

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

134,454

-

-

CANEY

VITAL STATS 14.0%

1,000,000

12.0%

750,000 500,000

10.0%

250,000

8.0%

0 6.0%

(250,000)

4.0%

(500,000)

2.0%

(750,000)

0.0%

(1,000,000) Q2 19

Q3 19

Q4 19

Q1 20

ABSORPTION

NEW DEVELOPMENTS

Q2 20

Q3 20

Q4 20

Q1 21

Q2 21

Q3 21

DELIVERIES

Q4 21

Q1 22

Q2 22

VACANCY

LARGE EXISTING VACANCIES

• NorthPoint 90 Logistics Center – a 668,761 SF spec development with NorthPoint Development

• 8404 East Freeway – 176,201 SF (Doggett holding DAYTON for their future use)

• Houston Tradeport | Building 1 – a 332,064 SF spec development with NorthPoint Development

• Houston Tradeport 3 | 8230 Plummer – 175,352 SF

GEORGE BUSH INTERCONTINENTAL AIRPORT

HUMBLE • Houston Coldport – a 315,101 SF spec development with Boomerang Interests

After treading water for the first three quarters of CYPRESS 2021, the submarket made an impressive recovery over the past three quarters to end Q2 2022 with a vacancy rate of 4.9%. Moreover, that vacancy factor is overstated as there are a few large spaces contributing to that number that are not available for lease due to owner users keeping vacant space for their future use or vacant space which is unusable due to ongoing reconstruction / renovation. Accounting for those spaces yields a vacancy rate closer to 3.9%. The primary driver of the recent recovery and absorption has come from a variety of third-party logistics providers, with both organic growth from existing tenants and from new entrants to the market. Relative to other Houston submarkets over the past several years, new development in the submarket has lagged considerably, particularly for speculative construction. As well-located development sites across Houston have become more supply constrained, developers are looking for alternative investment opportunities. That, along with the improvement in submarket fundamentals has the spec development market waking up, with considerably more proposed future development. The current and proposed activity GALLERIA is focused along the Highway 90 corridor, in the Liberty/ Mesa Road area, and at Houston Tradeport.

Absorption

• Mesa East Industrial Park – a 134,454 SF spec development with Summit Real Estate Group

• 2425 Turning Basin – 127,046 SF • Northway Park | 4849 Homestead – 102,680 SF (currently unavailable due to reconstruction)

MONT BELVIEU

25,837,774 SF

HOUSTON

BAY TOWN

SHIP CHANNEL

MEDICAL CENTER

PASADENA LA PORTE

HOBBY


12 Q2 2022 HOUSTON INDUSTRIAL MARKET REPORT

SUBMARKET INTELLIGENCE

PORT AREA

HLC OUTLOOK

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

1,623,225

1,667,528

376,049

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

16.0%

6.5%

9.1%

13.1%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

The Port submarket, named for its proximity to the Port of Houston’s container terminals, 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 2,500,000 2,000,000 12.0% 1,500,000

1,531,543

3,244,739

2,348,864

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

5,402,906

4,662,362

3,449,425

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

132,600

954,540

1,021,440

8.0%

1,000,000 500,000

4.0%

With 95% 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).

0 0.0%

(500,000)

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

Q2 22

VACANCY

WILLIS

NEW DEVELOPMENTS

MONTGOMERY

LARGE EXISTING VACANCIES

• TGS Cedar Port DC1 – a 1,211,620 SF spec development with TGS

• 4000 Cedar Blvd A – 312,034 SF

At the beginning of 2021, the submarket was suffering with a vacancy rate of 13.6% as deliveries had consistently outpaced absorption for several years. After a sluggish first half of 2021, the market has made a significant turnaround over the last 18 months, and ended the Q2 2022 with a vacancy rate of 6.5%. The second quarter experienced the best quarter over quarter improvement in occupancy over the prior 18 month period. It should be noted that the vacancy improvement during Q2 2022 was almost exclusively supply driven. While absorption during the quarter was in line with the prior four quarters, the occupancy gains came from a significant drop in deliveries compared to the fourquarter running average.

CLEVELAND

• Scout Cold Logistics Center |10575 Red Bluff – 248,240 SF CONROE

• TGS Cedar Port DC2 – a 496,421 SF spec development with TGS

• 15130 Market St – 160,761 SF

• Bayport 146 Distribution Center – a 454,600 SF spec development with Transwestern

• Red Bluff Industrial Bldg 2 – 95,690 SF

MAGNOLIA

• Port 10 Logistics Center 3 – a 451,008 SF spec development with Pontikes Development

THE WOODLANDS

• Cedar Port Distribution Center 5 – a 405,600 SF spec development with TGS PRAIRIE VIEW

NEW CANEY

TOMBALL SPRING

DAYTON

• 225 Logistics Center – a 403,066 SF spec development with Vigavi

GEORGE BUSH INTERCONTINENTAL AIRPORT

The new development pipeline remains very active with approximately 5.4M SF under construction. Assuming this new product is delivered smoothly over the next 9-12 months and absorption continues at its current pace, the construction pipeline should be fully accounted for.

HUMBLE

CYPRESS

MONT BELVIEU

BROOKSHIRE

KATY

57,404,304 SF

HOUSTON

BAY TOWN

SHIP CHANNEL

GALLERIA

MEDICAL CENTER

PASADENA LA PORTE

HOBBY AIRPORT

SUGAR LAND ELLINGTON AIRPORT

RICHMOND MISSOURI CITY PEARLAND

LEAGUE CITY

Proposed new development remains elevated at 9.7M SF. Due to a diminishing supply of land sites west of the ship channel, the vast majority of the proposed new development is east of the channel in Cedar Port, Ameriport, and along the Interstate 10 corridor north of Baytown. So long as the new development is phased over the next 2-3 years, the supply of new development should be manageable assuming absorption trends continue at their recent pace.


WILLIS

13 Q2 2022 HOUSTON INDUSTRIAL MARKET REPORT

SUBMARKET INTELLIGENCE

MONTGOMERY

SOUTH

HLC OUTLOOK

PRAIRIE VIEW

The South submarket benefits from its proximity to the world-renowned Texas Medical Center and growing population in 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 fromMAGNOLIA 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 little new development. Population is less dense in the South submarket when compared to the nearby Southwest TOMBALL submarket. Land in close proximity to the Texas Medical Center and Interstate 610 have seen rapidly increasing prices 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.

CONROE

THE WOODLANDS

BROOKSHIRE

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

412,420

2,872

(137,131)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

4.1%

5.7%

8.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

600,000 400,000

8.0%

200,000 6.0% 0 4.0%

471,557

534,547

339,252

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,417,237

237,342

20,486

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

436,569

NEW CANEY

VITAL STATS 10.0%

(200,000) 2.0%

(400,000)

0.0%

(600,000)

Q2 19

Q3 19

Q4 19

Q1 20

ABSORPTION

Q2 20

Q3 20

Q4 20

Q1 21

Q2 21

Q3 21

DELIVERIES

SPRING

NEW DEVELOPMENTS

LARGE EXISTING VACANCIES DAYTON

• Beltway 66 Business Park – a 925,960 SF spec development with Hillwood HUMBLE

• 2425 Broad Street – 102,142 SF

GEORGE BUSH INTERCONTINENTAL AIRPORT

• Lone Star Logistics Park – a 658,856 SF spec development with Hines

CYPRESS

At the end of Q2 2022, vacancy was 4.1% in the South submarket which is a decrease from the 5.7% vacancy at the end of Q1 2022. The South submarket experienced positive absorption during Q2 2022 of only 412,420 SF which is typical for this smaller and lower deal velocity submarket. However, the profile for the South submarket is quickly changing as developers have commenced construction on new projects during Q2 2022 with additional projects breaking ground in the second half of the 2022 calendar year. This recordbreakingKATY amount of new construction for the South submarket is historic since the submarket has delivered less than 1M SF of new construction during the past three years. 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.

CLEVELAND

• Carson 288 – a 607,039 SF spec development with Carson Companies • Beltway 35 Business Park – a 589,280 SF spec development with Greystar • South Belt Central | Phase I – a 436,569 SF spec development with IDV

MONT BELVIEU

• 610 Business District | Phase I – a 388,795 SF spec development with Lovett Industrial

HOUSTON

BAY TOWN

SHIP CHANNEL

GALLERIA

MEDICAL CENTER

PASADENA LA PORTE

HOBBY AIRPORT

SUGAR LAND

25,026,917 SF

ELLINGTON AIRPORT

RICHMOND MISSOURI CITY PEARLAND

LEAGUE CITY

Q4 21

Q1 22

Q2 22

VACANCY


14 Q2 2022 HOUSTON INDUSTRIAL MARKET REPORT

SUBMARKET INTELLIGENCE

SOUTHWEST

HLC OUTLOOK

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

419,901

601,136

1,125,562

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

8.0%

7.6%

9.2%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,205,166

1,460,788

989,369

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

952,499

1,328,994

7,412,400

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

660,870

138,525

911,036

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 an identical proximity as the Northwest submarket to Houston’s main population centers 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 12.0%

6,000,000 5,000,000

9.0%

4,000,000 3,000,000

6.0%

WILLIS

2,000,000 3.0%

1,000,000

MONTGOMERY

0

CLEVELAND

0.0%

(1,000,000) Q2 19

Q3 19

Q4 19

Q1 20

Q2 20

Q3 20

Q4 20

ABSORPTION

Q1 21

Q2 21

Q3 21

Q4 21

Q1 22

DELIVERIES

Q2 22

CONROE

VACANCY

MAGNOLIA

NEW DEVELOPMENTS • Weatherford Farms Industrial Park – a 568,084 SF development with Crow Holdings • Five Corners – a 541,946 SF development with Levey Group • Kirkwood Industrial – a 540,124 SF development with Crow Holdings • Fondren 8 Crossing – a 171,515 SF development with Adkisson

LARGE EXISTING VACANCIES THE WOODLANDS

• Park 8Ninety | 611 Highway 90A – 440,014 SF

NEW CANEY

• 10431 Mula Road – 311,205 SF PRAIRIE VIEW

Vacancy was 8.0% at the end of Q2 2022 which is a slight increase from the 7.6% vacancy rate in Q1 2022. The slight increase to the vacancy rate increased due to the 660,870 SF of deliveries with only 419,901 SF of absorption occurring during Q2 2022. The submarket currently has 952,499 SF under construction, the smallest of all Houston submarkets. As development sites have become more scarce in the Southwest submarket, developers have begun focusing on new construction in the nearby South submarket along Beltway 8 to meet the same demand.

TOMBALL

• 411 Cravens Road – 222,031 SF

SPRING

• 9500 W Sam Houston Parkway South – 190K SF

DAYTON

• Park 8Niney | 702 Cravens Road – 177,474 SF

GEORGE BUSH INTERCONTINENTAL AIRPORT

• City Park Logistics Center | Building 2 – 176,319 SF CYPRESS

HUMBLE

MONT BELVIEU

BROOKSHIRE

KATY

HOUSTON

BAY TOWN

SHIP CHANNEL

GALLERIA

MEDICAL CENTER

PASADENA LA PORTE

HOBBY AIRPORT

SUGAR LAND

57,156,938 SF

ELLINGTON AIRPORT

RICHMOND MISSOURI CITY PEARLAND

LEAGUE CITY


HOUSTON 11451 Katy Freeway, Suite 300 Houston, Texas 77079 T 713.850.8500 | F 713.850.8550

www.holtlunsford.com


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