Q4 2023 MARKET REPORT HOUSTON INDUSTRIAL Property: Interwood Distribution Center www.holtlunsford.com
HOUSTON 11451 Katy Freeway, Suite 300 Houston, Texas 77079 T 713.850.8500 | F 713.850.8550 www.holtlunsford.com 05 Houston Industrial Submarket Coverage 06 Houston Industrial Facts & Figures 08 Submarket Intelligence TABLE OF CONTENTS
04 Q4 2023 HOUSTON INDUSTRIAL MARKET REPORT
Q4 2023 HOUSTON INDUSTRIAL MARKET REPORT 05 HOUSTON HUMBLE CYPRESS PRAIRIE VIEW SPRING TOMBALL BROOKSHIRE KATY RICHMOND SHIP CHANNEL PASADENA BAY TOWN MONT BELVIEU DAYTON LA PORTE MEDICAL CENTER PEARLAND LEAGUE CITY MISSOURI CITY SUGAR LAND GALLERIA MAGNOLIA CONROE CLEVELAND THE WOODLANDS NEW CANEY GEORGE BUSH INTERCONTINENTAL AIRPORT HOBBY AIRPORT ELLINGTON AIRPORT NORTH 58,713,591 SF FAR NORTH 7,762,590 SF NEAR EAST 26,792,962 SF PORT AREA 58,865,528 SF SOUTH 24,893,612 SF FAR WEST 7,762,590 SF NORTHWEST 118,262,667 SF SOUTHWEST 57,765,350 SF HOUSTON INDUSTRIAL Submarket Coverage HLC tracks statistics, facts, and figures for institutional-grade industrial and flex warehouses within the submarkets detailed above.
HLC OUTLOOK
At the close of Q4 2023, market-wide vacancy for distribution and flex product stood at 8.8% for the Houston market, representing a small change from the Q3 vacancy factor, and a year-over-year increase of 270 basis points. Net absorption came in at 2,324,573 SF for Q4 2023, rounding out the year with more than 16.7M SF of absorption in 2023. New deliveries dipped at the end of the year to 3.4M SF which is slightly lower than the 4.9M SF delivered in Q4 2022.
Total SF under construction has consistently reduced in the past year, with roughly 20M SF of spec and BTS product currently under construction. Just over 30M SF of new product was delivered in 2023. The consistent decline indicates a cooling of the market as investors watch for interest rates to fall and tenant activity to increase before starting new development projects.
As seen throughout the country, the total market continues to cool down, but compared to the doubledigit vacancy rates in 2020 and early 2021, the historic amount of tenant demand we are seeing in virtually every submarket helps keep vacancy in the single digit range. Leasing activity totaled 7,628,073 SF during Q4 2023, which is a slight decrease from Q3 2023, but overall consistent for the year. There are three distinct submarkets that are benefiting the most from this continued activity: the Northwest, North, and Port submarkets. These three submarkets have accounted for just over 60% of YTD leasing activity. 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 has led to tangible rent growth throughout 2023.
Alternatively, if there is a submarket that is worth monitoring for signs of trouble, it would be the Far West submarket. In Q3, vacancy spiked up to 16.5% before Q4, finishing the year with a vacancy rate of 14%. In addition to a handful of +1M SF leases signed recently, and 1.8M SF of product currently under construction, the second lowest amount in the last 9 quarters, it could be concluded that vacancy rates will start to decrease due to the slowing of new development (outside of design-build requirements). That being said, the strategic Far West submarket continues to be a key player in leasing activity, having averaged just under 900K SF of quarterly absorption since the beginning of 2021.
HOUSTON INDUSTRIAL Trends & Transactions
TRENDS AND TRANSACTIONS
Total YTD leasing activity stands at just over 32M SF market-wide, confirming the projected market slowdown.
Tenant demand in the Port submarket will likely continue to rise as the Port of Houston posts record container volumes. Additionally, the Port submarket has seen an influx of retailers and 3rd party logistics service providers from California who are seeking to leverage the Port of Houston in light of head winds affecting LA/Long Beach and Inland Empire.
Turbulence in capital markets continues as rising interest rates have caused many potential buyers and sellers to reassess both deals on the market and new developments. Adding to this challenge is the continued increase in material and labor costs.
06 Q4 2023 HOUSTON INDUSTRIAL MARKET REPORT
Q4 Absorption vs. Prev. Qtr vs. 12 Mths Ago 2,324,573 5,934,355 6,341,010 Q4 Vacancy vs. Prev. Qtr vs. 12 Mths Ago 8.8% 8.6% 6.1% Q4 Leasing Activity vs. Prev. Qtr vs. 12 Mths Ago 7,628,073 8,709,579 13,293,559 Q4 U/C SF vs. Prev. Qtr vs. 12 Mths Ago 19,813,380 21,324,459 32,934,215 Q4 Delivered SF vs. Prev. Qtr vs. 12 Mths Ago 3,382,256 11,102,222 4,932,481 OVERALL HOUSTON OVERALL VACANCY ABSORPTION DELIVERIES VACANCY 0 0% 2 0% 4 0% 6 0% 8 0% 10 0% 12 0% 0 2 000 000 4 000 000 6 000 000 8 000 000 10 000 000 12 000 000 14 000 000 16 000 000 18 000 000 Q4 20 Q1 21 Q2 21 Q3 21 Q4 21 Q1 22 Q2 22 Q3 22 Q4 22 Q1 23 Q2 23 Q3 23 Q4 23 DIRECT SUBLET TOTAL 8.1% 10.4% 0.7% 0.3% 8.8% 10.7% 0 0% 2 0% 4 0% 6 0% 8 0% 10 0% 12 0% Q4 23 Q3 23 Q2 23 Q1 23 Q4 22 Q3 22 Q2 22 Q1 22 Q4 21 Q3 21 Q2 21 Q1 21 Q4 20 OVERALL ABSORPTION OVERALL CONSTRUCTION TOTAL NET LEASING ACTIVITY Q4 23 Q3 23 Q2 23 Q1 23 Q4 22 Q3 22 Q2 22 Q1 22 Q4 21 Q3 21 Q2 21 Q1 21 Q4 20 0 2 000 000 4 000 000 6 000 000 8 000 000 10 000 000 12 000 000 14 000 000 16 000 000 18 000 000 DELIVERED UNDER CONSTRUCTION 0 5 000 000 10 000 000 15 000 000 20 000 000 25 000 000 30 000 000 35 000 000 Q4 23 Q3 23 Q2 23 Q1 23 Q4 22 Q3 22 Q2 22 Q1 22 Q4 21 Q3 21 Q2 21 Q1 21 Q4 20
HOUSTON INDUSTRIAL Facts & Figures
SOURCE: COSTAR
Q4 2023 HOUSTON INDUSTRIAL MARKET REPORT 07 SUBMARKET EXISTING INVENTORY VACANCY # BLDGS. TOTAL RBA DIRECT SUBTOTAL TOTAL YTD NET ABSORPTION YTD DELIVERIES UNDER CONSTRUCTION SF YTD LEASING ACTIVITY North 721 68,400,572 8.20% 2.20% 10.40% 2,867,213 4,029,937 5,103,923 5,605,174 Northwest 1,552 125,669,600 8.10% 0.20% 8.30% 1,959,137 6,195,480 1,379,589 8,832,638 Far North 118 8,570,261 4.20% 1.60% 5.80% 443,043 839,769 246,750 661,644 Near East 341 35,526,880 6.90% 0.40% 7.30% 452,382 1,439,364 766,431 2,486,004 Port Area 539 81,490,046 8.50% 0.80% 9.30% 4,315,474 8,493,163 5,409,995 5,411,078 South 424 31,170,485 9.40% 0.10% 9.50% 1,374,472 2,692,477 3,110,229 2,396,992 Southwest 692 57,065,053 4.60% 0.30% 4.90% 848,856 1,151,662 2,003,983 3,476,646 Far West 250 36,979,285 13.40% 0.60% 14.00% 4,554,907 5,728,091 1,792,480 3,807,815 TOTALS 4,637 444,872,182 8.10% 0.70% 8.80% 16,815,484 30,569,943 19,813,380 32,677,991
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, Tesla, 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 in the Far West decreased to 14% in Q4 2023 from 16.5% in Q3 2023. In contrast to the previous quarter, the decrease in the vacancy rate is due to the reduced new construction occurring in the submarket in Q4 2023. The total 2023 deliveries for the Far West submarket is just under 100K SF compared to over 2.5M SF the previous quarter. While reduced, this continued new construction in the Far West submarket increased the overall size of the submarket by 15%. The Far West submarket continued to experience positive absorption with 985,902 SF during Q4 2023. There is a total of 5,411,078 SF under construction which is the second largest amount in comparison to all other submarkets.
NEW DEVELOPMENTS
• Kingsland Ranch Logistics Park – a 2M SF development with Hunt Southwest
• 4008 Heritage Drive – a 283K SF development with Falcon Commercial Development
• 28347 Katy Freeway – a 205K SF development with Sealy Real Estate Services
• 814 FM 1489 – a 167K SF development with Growth Capital Partners
• 1164 Jordan Ranch Boulevard – a 127K SF development with Falcon Commercial Development
• Bridgewater Commerce Center – an eight (8) building project of 40K SF buildings
VITAL STATS
LARGE EXISTING VACANCIES
• I-10 West Trade Center – 1,051,080 SF
• The Uplands Twinwood DC 1 – 737,630 SF
• Anserra Building 2 – 509,975 SF
• 28501 US-90 – 420K SF
• Kingsland Ranch Logistics Park Building 4 – 315,655 SF
• Anserra Building 1 – 205,895 SF
• Stonelake West Ten – 195,938 SF
• Empire West Business Park Building 7 – 132,662 SF
• Empire West Business Park Building 6 – 127,382 SF
08 Q4 2023 HOUSTON INDUSTRIAL MARKET REPORT SUBMARKET INTELLIGENCE
ABSORPTION DELIVERIES VACANCY 0 0% 2 0% 4 0% 6 0% 8 0% 10 0% 12 0% 14 0% 16 0% 18 0% 0 5 00 000 1 000 000 1 5 00 000 2 000 000 2 500 000 3 000 000 3 500 000 4 000 000 4 500 000 Q4 2 0 Q1 2 1 Q2 2 1 Q3 2 1 Q4 2 1 Q1 2 2 Q2 2 2 Q3 2 2 Q4 2 2 Q1 2 3 Q2 2 3 Q3 2 3 Q4 2 3
Q4 Absorption vs. Prev. Qtr vs. 12 Mths Ago 985,902 1,005,756 1,040,183 Q4 Vacancy vs. Prev. Qtr vs. 12 Mths Ago 14.0% 16.5% 12.8% Q4 Leasing Activity vs. Prev. Qtr vs. 12 Mths Ago 1,083,346 1,533,713 2,542,098 Q4 U/C SF vs. Prev. Qtr vs. 12 Mths Ago 1,792,480 948,370 5,704,691 Q4 Delivered SF vs. Prev. Qtr vs. 12 Mths Ago 99,250 2,561,468 777,690
HOUSTON HUMBLE CYPRESS PRAIRIE VIEW SPRING TOMBALL BROOKSHIRE KATY SHIP CHANNEL PASADENA BAY TOWN LA PORTE MEDICAL CENTER SUGAR LAND GALLERIA MONTGOMERY MAGNOLIA CONROE CLEVELAND WILLIS THE WOODLANDS NEW CANEY GEORGE BUSH INTERCONTINENTAL AIRPORT HOBBY AIRPORT ELLINGTON AIRPORT 29,852,704 SF
HLC OUTLOOK
VITAL STATS
NEW DEVELOPMENTS
• 500 N Sam Houston Parkway W – a 157,300 SF development with Brennan Investment Group
• 9320 Highway 6 N – a 149,918 SF development with Creation and LGE
• 9910 Cypress Creek Parkway – a 149,773 SF development with Creation and LGE
• Fairbanks Logistics Park – 1,206,817 SF
• 11833 Cutten Road – 293,280 SF
• 8518 W Little York Road – 211,344 SF
• 14402 Fallbrook Drive – 204,597 SF
The Northwest submarket is the largest of the eight Industrial submarkets HLC tracks in Houston with more than 119M SF of product or approximately 30% of the institutional industrial product in Houston. Geographically located north of Interstate 10 along Highway 290 and West Sam Houston Parkway corridors, the submarket has historically offered a “Main and Main” location for distribution tenants needing to be close to the regional population center.
Recently, the Northwest submarket has expanded well beyond Sam Houston Parkway, going along Highway 290 toward Cypress and Hwy 249 toward Tomball. Developers have increasingly looked at these suburban locations for new large-scale developments due to the availability of land relative to the area closer to Sam Houston Parkway. Over the last 1218 months, we have seen a significant number of developers take land positions in Cypress, Tomball, and Waller in an attempt to meet a growing need from tenants for larger, more modern distribution centers. However, many of these suburban sites come with a lack of infrastructure, which has created a longer development timeline for many projects. Only a handful of these sites are expected to break ground as spec developments in the near future.
In addition to the above-described outward expansion, there are a handful of quality “infill” sites inside of Sam Houston Parkway that have recently been purchased by developers for spec projects. These smaller, oftentimes more challenging sites, have become increasingly in-demand as developers attempt to build Class A product close to the population center.
At the end of Q4 2023, the vacancy rate in the Northwest submarket was 8.3% which was a slight decrease when compared to the 6.4% vacancy rate of the previous Q3 2023. Until recently, vacancy rates trended downward since their recent peak of 9.7% during COVID. Net absorption came in at 202,591 SF for Q4 2023 while new deliveries equaled 123,972 SF. But by far the biggest story in Northwest Houston continues to be the blistering pace of leasing activity. At the end of 2023, we will have seen more than 8.8M SF of leasing activity in the submarket and as a result, rents have begun to increase to levels never before seen in Houston. This strong rental growth is likely to continue, particularly for buildings that are located in “infill” pockets of the submarket.
Q4 2023 HOUSTON INDUSTRIAL MARKET REPORT 09 SUBMARKET INTELLIGENCE ABSORPTION DELIVERIES VACANCY 0 0% 1 0% 2 0% 3 0% 4 0% 5 0% 6 0% 7 0% 8 0% 9 0% 10 0% -5 00 000 0 5 00 000 1 000 000 1 5 00,000 2 000 000 2 500 000 3 000 000 Q4 2 0 Q1 2 1 Q2 2 1 Q3 2 1 Q4 2 1 Q1 2 2 Q2 2 2 Q3 2 2 Q4 2 2 Q1 2 3 Q2 2 3 Q3 2 3 Q4 2 3
Q4 Absorption vs. Prev. Qtr vs. 12 Mths Ago 202,591 1,791,594 1,384,335 Q4 Vacancy vs. Prev. Qtr vs. 12 Mths Ago 8.3% 8.4% 5.2% Q4 Leasing Activity vs. Prev. Qtr vs. 12 Mths Ago 2,284,608 2,026,944 2,965,980 Q4 U/C SF vs. Prev. Qtr vs. 12 Mths Ago 1,379,589 1,503,561 6,713,980 Q4 Delivered SF vs. Prev. Qtr vs. 12 Mths Ago 123,972 2,046,223 349,765
LARGE EXISTING VACANCIES
HOUSTON HUMBLE CYPRESS PRAIRIE VIEW SPRING TOMBALL BROOKSHIRE KATY SHIP CHANNEL PASADENA BAY TOWN MONT BELVIEU DAYTON LA PORTE MEDICAL CENTER SUGAR LAND GALLERIA MONTGOMERY MAGNOLIA CONROE CLEVELAND WILLIS THE WOODLANDS NEW CANEY GEORGE BUSH INTERCONTINENTAL AIRPORT ELLINGTON 118,262,667 SF
NORTHWEST
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, and Highway 59/Interstate 69. This submarket has been one of the fastest growing in recent years due to a growing population in Northern Harris County and Montgomery County to the north, as well as the availability of land for new development relative to the submarket’s neighbor to the west, the Northwest submarket. In fact, we’ve seen the Northwest and North submarkets somewhat bleed together recently with many tenants considering locating in either/or, rather than one over the other. This is a trend that we expect to continue as land and available space both become increasingly harder to find in “true” Northwest Houston, while new spec development will continue in the North submarket in the areas around Bush Intercontinental.
Vacancy in the North submarket increased to 10.4% at the end of Q4 2023 which is a slight increase from Q3 2023. Net absorption remained strong, coming in at more than 537,363 SF for Q4 2023 and totalled more than 2.8M SF for 2023. However, the increase in vacancy can be attributed to the 1,383,964 SF of new deliveries during the quarter. Currently, there is just more than 5,103,923 SF of new construction underway in the submarket.
NEW DEVELOPMENTS
• 15550 Milner Road – a 1,213,573 SF development with Prologis
• 7491 Rankin Road – a 462,160 SF development with Phelan Development
• Humble Commerce Center – a six (6) building 293K SF development with Urban Companies
• 500 N Sam Houston Parkway – a 157,300 SF development with Brennan Investment Group
• 6415 Rankin Road – a 151,605 SF development with Quannah Partners
• 16622 Hafer Road – a 112,667 SF development with Alliance Industrial Compan
LARGE EXISTING VACANCIES
• 15550 Milner Road – 1,213,160 SF
• 6115 Greens Road – 567,140 SF
• 17440 Highway 59 – 509,600 SF
• 16615 North Freeway – 362,030 SF
• 13300 John F Kennedy Boulevard – 329,721 SF
• 13600 John F Kennedy Boulevard – 280,814 SF
10 Q4 2023 HOUSTON INDUSTRIAL MARKET REPORT SUBMARKET INTELLIGENCE
ABSORPTION DELIVERIES VACANCY 0 0% 5 0% 10 0% 15 0% 2 0 0% 2 5 0% -5 00,000 0 5 00 000 1 000,000 1 5 00,000 2 000 000 2 500 000 3 000 000 Q4 2 0 Q1 2 1 Q2 2 1 Q3 2 1 Q4 2 1 Q1 2 2 Q2 2 2 Q3 2 2 Q4 2 2 Q1 2 3 Q2 2 3 Q3 2 3 Q4 2 3
VITAL STATS
Q4 Absorption vs. Prev. Qtr vs. 12 Mths Ago 537,363 744,082 389,879 Q4 Vacancy vs. Prev. Qtr vs. 12 Mths Ago 10.4% 9.4% 9.2% Q4 Leasing Activity vs. Prev. Qtr vs. 12 Mths Ago 997,271 1,406,297 1,724,293 Q4 U/C SF vs. Prev. Qtr vs. 12 Mths Ago 5,103,923 5,768,750 5,648,698 Q4 Delivered SF vs. Prev. Qtr vs. 12 Mths Ago 1,383,964 735,383 442,140 NORTH HOUSTON HUMBLE CYPRESS PRAIRIE VIEW SPRING BROOKSHIRE KATY SHIP CHANNEL BAY TOWN MONT BELVIEU DAYTON GALLERIA MONTGOMERY MAGNOLIA CONROE CLEVELAND WILLIS THE WOODLANDS NEW CANEY GEORGE BUSH INTERCONTINENTAL AIRPORT 58,713,591 SF
FAR NORTH
NEW DEVELOPMENTS
• 9400 FM 2920 – a 146,800 SF development with Lincoln
LARGE EXISTING VACANCIES
• 19200 Hamish Road – 353,996 SF
• 22500 North Freeway – 167,550 SF
VITAL STATS
HLC OUTLOOK
The Far North submarket begins at the southern edge of Montgomery County and stretches north all the way past Conroe. Population growth and easy access to the Dallas-Fort Worth market 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.
As the Houston market’s smallest submarket, with only about 8.5M SF of institutional-grade industrial product, Far North tends to be overlooked by many investors and brokers. Vacancy was 5.8% at the end of Q4 2023 ending the year 4% higher than it started. 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.
Q4 2023 HOUSTON INDUSTRIAL MARKET REPORT 11 SUBMARKET INTELLIGENCE ABSORPTION DELIVERIES VACANCY 0 0% 2 0% 4 0% 6 0% 8 0% 10 0% 12 0% 14 0% 16 0% 18 0% 0 5 00 000 1 000 000 1 5 00 000 2 000 000 2 500 000 3 000 000 3 500 000 4 000 000 4 500 000 Q4 2 0 Q1 2 1 Q2 2 1 Q3 2 1 Q4 2 1 Q1 2 2 Q2 2 2 Q3 2 2 Q4 2 2 Q1 2 3 Q2 2 3 Q3 2 3 Q4 2 3
Q4 Absorption vs. Prev. Qtr vs. 12 Mths Ago 231,092 (19,938) (1,787) Q4 Vacancy vs. Prev. Qtr vs. 12 Mths Ago 5.8% 6.6% 1.3% Q4 Leasing Activity vs. Prev. Qtr vs. 12 Mths Ago 450,448 43,285 13,000 Q4 U/C SF vs. Prev. Qtr vs. 12 Mths Ago 246,750 419,550 489,425 Q4 Delivered SF vs. Prev. Qtr vs. 12 Mths Ago 172,800 350,344 -
HUMBLE CYPRESS PRAIRIE VIEW SPRING TOMBALL BROOKSHIRE KATY MONT BELVIEU DAYTON MONTGOMERY MAGNOLIA CONROE CLEVELAND WILLIS THE WOODLANDS CANEY NEW GEORGE BUSH AIRPORT 7,762,590 SF
NEAR EAST
HLC OUTLOOK
The majority of industrial products in the Near East submarket were constructed in the 1970s and 1980s. With limited new construction since that time, the average product age in this submarket is one of the oldest in Houston. Historically, this was the lowest priced submarket in Houston and attracted price-sensitive users. In particular, this submarket appealed to third-party logistics companies, notably resin repackagers. Its widespread rail infrastructure and proximity to the Port of Houston made it the preferred submarket for port-centric users. That preference has diminished in recent years due to its aging / outdated rail infrastructure and the growth of the Port submarket. Additionally, the rent discount this submarket enjoyed relative to competing Houston submarkets has diminished in recent years, reducing its attractiveness to price-sensitive users.
At the beginning of 2023, the submarket vacancy rate hit 6.4%. This could be due to a combination of two things. This year alone, over 1.4M SF was delivered which was unheard of before 2022. Also, there have been a number of larger tenants exiting the submarket in late 2022 and early 2023 in favor of competing submarkets (North and Port). In addition to the tenant losses, there was a general lack of organic growth from existing tenants, and new tenants to the submarket were uncommon.
Over the last three quarters, the sub-market has shown a slight decrease in leasing activity. After finishing Q2 2023 with a vacancy rate in the mid 3% range, the vacancy rate over the second half of the year has drifted higher and now stands at 7.3%. Despite healthy absorption metrics in Q2, deliveries outpaced demand. While the new development pipeline would typically be cause for concern, this submarket is beginning to offer a viable alternative to the Port submarket. With the Port submarket south of the ship channel tightening up with little room for future growth, the Near East provides a viable alternative for those considering areas in the Port submarket north of the ship channel.
In the recent past, Q4 2021 vacancy rates were at 9.2%, almost 2% higher than where the market currently sits at 7.3%. The key drivers for the recovery of this submarket over the past eight quarters came from a variety of thirdparty logistics providers, both organic growth from existing tenants and new entrants, as well as e-commerce/ Retail distribution tenants.
As noted, in the past, new development has lagged in this sub-market. Prior to 2022, there had only been 1.1M SF of spec deliveries over the past 20 years. However, as prime development sites across Houston have become supply constrained, developers have sought alternative opportunities. That, along with the improvement in submarket fundamentals has led to numerous active and proposed new developments. The recent, current and proposed activity is focused along the Highway 90 corridor, in the Liberty/Mesa Road area, and at Houston Tradeport.
NEW DEVELOPMENTS
• Wallisville Distribution Center – a 349,440 SF development with Stonelake Capital Partners
• 12802 Crosby Freeway – a 333,456 SF development with Teal Construction Company
VITAL STATS
LARGE EXISTING VACANCIES
• 9255 Ley Road – 408,240 SF
• Wallisville Distribution Center – 349,440 SF
• 9255 Railwood Drive – 300K SF
• Northpoint 90 Logistics Center – 295,640 SF
• 6955 Mesa Drive – 225,120 SF
12 Q4 2023 HOUSTON INDUSTRIAL MARKET REPORT SUBMARKET INTELLIGENCE
ABSORPTION DELIVERIES VACANCY 0 0% 2 0% 4 0% 6 0% 8 0% 10 0% 12 0% -1 000 000 -5 00 000 0 5 00 000 1 000 000 1 5 00 000 2 000 000 Q4 2 0 Q1 2 1 Q2 2 1 Q3 2 1 Q4 2 1 Q1 2 2 Q2 2 2 Q3 2 2 Q4 2 2 Q1 2 3 Q2 2 3 Q3 2 3 Q4 2 3
Q4 Absorption vs. Prev. Qtr vs. 12 Mths Ago (149,459) (215,762) 548,000 Q4 Vacancy vs. Prev. Qtr vs. 12 Mths Ago 7.3% 5.0% 4.7% Q4 Leasing Activity vs. Prev. Qtr vs. 12 Mths Ago 1,038,446 174,325 439,627 Q4 U/C SF vs. Prev. Qtr vs. 12 Mths Ago 766,431 1,449,327 1,847,604 Q4 Delivered SF vs. Prev. Qtr vs. 12 Mths Ago 682,896 424,404 668,761
HUMBLE
SPRING
HOUSTON
CYPRESS
TOMBALL
SHIP CHANNEL
TOWN
PASADENA BAY
MONT BELVIEU DAYTON
CENTER
LA PORTE MEDICAL
MONTGOMERY
GALLERIA
MAGNOLIA CONROE CLEVELAND
NEW CANEY GEORGE BUSH INTERCONTINENTAL AIRPORT HOBBY AIRPORT
THE WOODLANDS
26,792,962 SF
VITAL STATS
HLC OUTLOOK
The Port submarket, named for its proximity to the Port of Houston’s container terminals and dock facilities, 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.
With 96% 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 a majority of the plastic resin repackagers), downstream energy service providers, and retail (ex. Walmart, Home Depot, IKEA, Webstaurant, Floor & Decor).
NEW DEVELOPMENTS
• Cedar Port Industrial Park – a 1,218,956 SF development with Trans-Global Solutions
• 13200 Space Center Boulevard – a 400K SF development with Griffin Partners
• 2828 FM 1405 – a 164,640 SF development with Dayton Street Partners
LARGE EXISTING VACANCIES
• 7505 Fisher Road – 1,218,956 SF
• 4838 Borusan Road – 760,364 SF
• I-10 East Commerce Center – 609K SF
• Baytown 10 Commerce Center – 503,775 SF
• AmeriPort Business Park – 500K SF
• Cedar Port Industrial Park – 496,421 SF
In late 2022 and early 2023, the submarket was boasting a vacancy rate in the sub 6% as deliveries had consistently outpaced absorption for several years. In the second half of 2023 the market made a turnaround and ended Q4 2023 with a vacancy rate of 9.3%. Compared to 2022, this market’s 2023 absorption slowed. This can be attributed to a strong decrease in leasing activity while deliveries increased by 2M SF YTD.
The new development pipeline remains very active. While there is activity south of the ship channel, developable sites in this part of the submarket are becoming increasingly difficult to source and face zoning challenges. Thus, deliveries there have begun to wane. It is anticipated that further development in this part of the submarket will diminish further over time. The bulk of current and projected future activity is in the areas north of the ship channel, where there remains abundant land for future development. In addition to the greater Cedar Port area, activity along or near the I-10 corridor on the north side of Baytown has increased significantly.
The new development pipeline continues to be worth monitoring for the submarket overall, with over 5M SF underway. The bulk of this activity is north of the ship channel.
Q4 2023 HOUSTON INDUSTRIAL MARKET REPORT 13 SUBMARKET INTELLIGENCE ABSORPTION DELIVERIES VACANCY 0 0% 2 0% 4 0% 6 0% 8 0% 10 0% 12 0% 14 0% 0 5 00 000 1 000 000 1 5 00 000 2 000 000 2 500 000 3 000 000 3 500 000 4 000 000 Q4 2 0 Q1 2 1 Q2 2 1 Q3 2 1 Q4 2 1 Q1 2 2 Q2 2 2 Q3 2 2 Q4 2 2 Q1 2 3 Q2 2 3 Q3 2 3 Q4 2 3
Q4 Absorption vs. Prev. Qtr vs. 12 Mths Ago 435,113 1,559,189 1,966,880 Q4 Vacancy vs. Prev. Qtr vs. 12 Mths Ago 9.3% 9.3% 4.6% Q4 Leasing Activity vs. Prev. Qtr vs. 12 Mths Ago 784,952 2,066,824 3,011,743 Q4 U/C SF vs. Prev. Qtr vs. 12 Mths Ago 5,409,995 5,809,995 7,756,468 Q4 Delivered SF vs. Prev. Qtr vs. 12 Mths Ago 400,000 3,497,638 2,249,783
HOUSTON HUMBLE CYPRESS PRAIRIE VIEW SPRING TOMBALL BROOKSHIRE KATY RICHMOND SHIP CHANNEL PASADENA BAY TOWN MONT BELVIEU DAYTON LA PORTE MEDICAL CENTER PEARLAND LEAGUE CITY MISSOURI CITY SUGAR LAND GALLERIA MONTGOMERY MAGNOLIA CONROE CLEVELAND WILLIS THE WOODLANDS NEW CANEY GEORGE BUSH INTERCONTINENTAL AIRPORT HOBBY AIRPORT AIRPORT 58,865,528 SF
PORT AREA
HLC OUTLOOK
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. Interstate 610, Highway 288, and Highway 90 allow for easy access to the primary loops for traversing Houston from the South submarket. While the South submarket is one of the smaller submarkets of Houston with just over 31M SF, 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 submarket. Land near 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.
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 neighboring the South.
Vacancy increased slightly this quarter to 9.5% with a few new deliveries becoming online this quarter. As we enter into 2024, the South submarket has 3.1M SF under construction. This continues to be a record breaking amount of new construction for the South submarket since the submarket has delivered less than 1M SF of new construction during the past three years. The biggest news coming out of the South submarket is the announcement that Carson signed a lease at their 288 project as well as the large build-to-deal deal with Target and Memorial Herman signed in Q3.
NEW DEVELOPMENTS
• Lower Kirby – a 216,004 SF development with Brennan Investment Group
• South Belt Central Business Park – a 198,800 SF with IDV
• 11217 Telephone Road – a two (2) building 192,318 SF development with Constellation and Cadre
• Beltway 8 & Hooper Road – a two (2) building 120,150 SF development with Adkinson Group Development
LARGE EXISTING VACANCIES
• East End Logistics Park – Buildings 1 & 2 – 578,698 SF
• South Belt Central Business Park – 373,683 SF
• 610 Business District – 291,459 SF
• East End Logistics Park – Building 3 – 224,815 SF
• Lower Kirby Drive – 216,004 SF
14 Q4 2023 HOUSTON INDUSTRIAL MARKET REPORT SUBMARKET INTELLIGENCE
ABSORPTION DELIVERIES VACANCY 0 0 % 1 0 % 2 0 % 3 0 % 4 0 % 5 0 % 6 0 % 7 0% 8 0 % 9 0 % 1 0 0% - 40 0,0 00 - 30 0 0 00 - 20 0 0 00 - 10 0 0 00 0 1 00 00 0 2 00 0 0 0 3 00 0 0 0 4 00 00 0 5 00 0 0 0 6 00 0 0 0 Q4 1 9 Q1 2 0 Q2 2 0 Q3 2 0 Q4 2 0 Q1 2 1 Q2 2 1 Q3 2 1 Q4 2 1 Q1 2 2 Q2 2 2 Q3 2 2 Q4 2 2 VITAL STATS
Q4 Absorption vs. Prev. Qtr vs. 12 Mths Ago 12,701 1,029,380 (45,938) Q4 Vacancy vs. Prev. Qtr vs. 12 Mths Ago 9.5% 8.9% 5.8% Q4 Leasing Activity vs. Prev. Qtr vs. 12 Mths Ago 407,472 458,858 1,960,213 Q4 U/C SF vs. Prev. Qtr vs. 12 Mths Ago 3,110,229 3,206,083 3,036,073 Q4 Delivered SF vs. Prev. Qtr vs. 12 Mths Ago 216,004 962,573 151,342
HOUSTON HUMBLE CYPRESS PRAIRIE VIEW SPRING TOMBALL BROOKSHIRE KATY RICHMOND SHIP CHANNEL PASADENA BAY TOWN MONT BELVIEU DAYTON LA PORTE MEDICAL CENTER PEARLAND LEAGUE CITY MISSOURI CITY SUGAR LAND GALLERIA MONTGOMERY MAGNOLIA CONROE CLEVELAND WILLIS THE WOODLANDS NEW CANEY GEORGE BUSH INTERCONTINENTAL AIRPORT HOBBY AIRPORT ELLINGTON AIRPORT 24,893,612 SF
SOUTH
SOUTHWEST
VITAL STATS
HLC OUTLOOK
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 buildto-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 the coming years because of its direct proximity to the dense and continually growing population base in both West and Southwest Houston.
NEW DEVELOPMENTS
• Main Central Business Park – a 524,189 SF development with Greenlaw and BGO
• Cravens Logistics Center – a 249,370 SF development with Johnson Development Associates
• Stiles Business Park – a two (2) building 107,500 SF development with Pearl River
LARGE EXISTING VACANCIES
• Main Central Business Park – 524,189 SF
• Sugar Land Interchange Distribution Center – 406,663 SF
• Constellation Post Oak – 302,825 SF
• Kirkwood Industrial – 207,314 SF
• 10600 Corporate Drive – 188K SF
Vacancy was 4.9% at the end of Q4 2023 which is an increase from 4.6% vacancy rate from the previous Q3 2023. The increase in the vacancy rate could be attributed to the 500K SF of leasing activity compared to almost 1M SF the previous quarter. The total Q4 2023 vacancy rate reflects a consistent submarket vacancy trend as vacancy has been steadily decreasing for the last three years. The Southwest submarket currently has 2,003,983 SF under construction which accounts for only approximately 10% of the total under construction for the entire Houston industrial submarket. Construction deliveries during Q4 2023 were 303,370 SF for the Southwest submarket which is part of a larger trend in the Southwest submarket experiencing an average of 290K SF delivered every quarter for the last 5 quarters. This is in contrast to the record breaking 5.9M SF of Construction deliveries that occurred in Q3 2021 mostly attributable to several Amazon facilities being completed. Demand and interest from tenants in the Southwest submarket remains high. As development sites have become more scarce in the Southwest submarket, developers have begun to shift their focus on new opportunities in the nearby South submarket along Sam Houston Tollway as an alternative.
Q4 2023 HOUSTON INDUSTRIAL MARKET REPORT 15 SUBMARKET INTELLIGENCE ABSORPTION DELIVERIES VACANCY 0 0% 2 0% 4 0% 6 0% 8 0% 10 0% 12 0% 0 1 000 000 2 000,000 3 000,000 4 000 000 5 000 000 6 000 000 Q4 19 Q1 2 0 Q2 2 0 Q3 2 0 Q4 2 0 Q1 2 1 Q2 2 1 Q3 2 1 Q4 2 1 Q1 2 2 Q2 2 2 Q3 2 2 Q4 2 2
Q4 Absorption vs. Prev. Qtr vs. 12 Mths Ago 69,270 26,396 1,066,158 Q4 Vacancy vs. Prev. Qtr vs. 12 Mths Ago 4.9% 4.6% 4.5% Q4 Leasing Activity vs. Prev. Qtr vs. 12 Mths Ago 581,530 1,012,350 636,605 Q4 U/C SF vs. Prev. Qtr vs. 12 Mths Ago 2,003,983 2,218,823 1,875,941 Q4 Delivered SF vs. Prev. Qtr vs. 12 Mths Ago 303,370 524,189 293,000
HOUSTON HUMBLE CYPRESS PRAIRIE VIEW SPRING TOMBALL BROOKSHIRE KATY RICHMOND SHIP CHANNEL PASADENA BAY TOWN MONT BELVIEU DAYTON LA PORTE MEDICAL CENTER PEARLAND LEAGUE CITY MISSOURI CITY SUGAR LAND GALLERIA MONTGOMERY MAGNOLIA CONROE CLEVELAND WILLIS THE WOODLANDS NEW CANEY GEORGE BUSH INTERCONTINENTAL AIRPORT HOBBY AIRPORT 57,765,350 SF
HOUSTON 11451 Katy Freeway, Suite 300 Houston, Texas 77079 T 713.850.8500 | F 713.850.8550 www.holtlunsford.com