Texas Industrial Market Boom: Demand for Large-Scale Spaces Surges

BY BRANDI SMITH

The Lone Star State is experiencing a kind of industrial revolution as the Texas market witnesses an unprecedented surge in demand for industrial spaces of 100,000 square feet and larger. From manufacturing and logistics to e-commerce and beyond, businesses across various sectors are on the hunt for colossal spaces, signaling a shift in the industrial real estate landscape.

“The demand for various services and resources in Texas remains robust, with varying factors driving this trend across multiple regions,” said Fred Ragsdale, a member of JLL’s Dallas Industrial Services group.

The state’s strategic location makes it ideal for businesses looking to expand, while its proximity to Mexico and the Gulf of Mexico provides easy access to both domestic and international markets. On top of that, Texas has experienced strong economic growth in recent years with a booming tech industry and a growing population. This growth has led to an increased demand for industrial space to support the manufacturing, logistics and distribution needs of businesses. Mix in the state’s business-friendly environment, which includes low taxes, minimal regulations, and a pro- business government, along with affordability of its real estate compared to LA, Chicago or New York, and it’s clear why Texas is the darling of the industrial market.

Dallas-Fort Worth is one of the fastest-growing industrial markets in the country, according to Ragsdale.

“It has become a major distribution hub for goods moving all over the country,” he added. “Sustained demand and specific occupier requirements will continue to keep the market as one of the highest nationally.”

Meanwhile, San Antonio and the Rio Grande Valley are emerging as significant nearshoring hubs, taking advantage of their proximity to Mexico and a skilled workforce.

“The City of Laredo, which houses the busiest port of entry in the United States, moves an estimated 20,000 18-wheelers per day, making it a crucial hub for cross-border trade,” said Mark Krenger, managing director at JLL San

Antonio. “Mexico is recognized as one of the world's most robust labor bases, and the country's manufacturing sector has been gaining momentum due to supply chain disruptions arising from the COVID-19 pandemic.”

Houston also experienced a surge in construction activity with 36 million square feet of new space breaking ground during the year and 29 million square feet under construction in 2022 Q4. Thanks to a significant uptick in container traffic at the Port of Houston, an increased number of distribution centers are setting up operations in the region.

“Several companies are also relocating their distribution centers from the West Coast to Houston, to better accommodate the growing volume of materials arriving in the port,” said Richard Quarles, a Senior Vice President within JLL Houston's industrial Services group. “This trend is fueling demand for warehouse space and logistics services, creating a robust distribution network in the city.”

Finally, the tremendous growth and transformation of Texas’ capital city isn’t slowing.

“Austin is emerging as a major manufacturing and technology hub. One of the primary drivers of this expansion is population growth,” said Kyle McColloch, vice president at JLL Austin. “As a result, there has been a surge in demand from retailers for last mile distribution. Moreover, the city has become a prominent hub for semiconductor manufacturing, with a growing number of suppliers establishing operations in the region.”

Based on JLL Q4 Industrial research, the construction of new industrial space in Austin reached 2.1 million square feet during the fourth quarter of 2022, contributing to a total of 15 million square feet of ongoing construction, which is a record high.

“Austin is experiencing a surge in demand for properties over 100,000 square feet, with several major companies setting up large-scale manufacturing and distribution operations in the region,” McColloch said. “This has fueled a construction boom, with developers racing to meet the growing demand for large properties in the area.”

One of those projects is ATX 130, a four-building, 602,000-square-foot industrial development less than two miles from Austin-Bergstrom International Airport.

“ATX 130 will help meet the strong demand for industrial space in Austin by offering high-quality, modern facilities designed to meet the needs of a range of users,” said Miles Terry, Vice President of Development at JacksonShaw, adding that its prime location minutes from Tesla and Downtown Austin makes it an ideal choice for businesses looking to expand or relocate to the market. “The project is near strong labor and tremendous rooftop growth, which are important for today’s industrial tenants.”

Addressing the demand for larger spaces, three of ATX 130’s buildings are 120,000 square feet or larger. Building 3, for example, totals 207,000 square feet and has already been pre-leased in its entirety to Ferguson Enterprises, a multinational plumbing and headline products distributor.

Distribution needs have certainly fed some of the demand for industrial space in Texas, but there are a number of other sectors contributing, including e-commerce, logistics and manufacturing.

“While we don't have specific tenants committed for the remainder of the buildings, we believe that almost any business could find a home at ATX 130,” Terry said. “The project is designed to be flexible, targeting tenants ranging in size from 16,000 square feet to 395,000 square feet and buildings that can be configured to meet the specific needs of each tenant, whether they require manufacturing, distribution, or office space.”

The property is also strategically located within a Triple Freeport Zone and a Qualified Opportunity Zone, added Terry.

“We take great pride in our commitment to providing high-quality business parks that meet the needs of today's tenants,” he said. “Our team is dedicated to ensuring each tenant has the support they need to succeed and grow in the Austin market.”

The combination of increased e-commerce, reshoring of manufacturing, infrastructure investment and sustainability efforts is expected to fuel even more industrial development in the coming years, prompting businesses to seek industrial space to support their operations. Due to its prime conditions, Texas will likely be home to many of those projects, including more from Jackson Shaw.