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